Use the Following Information to Answer the Following Question(s)

question 118

Multiple Choice

Use the following information to answer the following question(s) .
A firm is trying to determine whether to replace an existing asset.The proposed asset has a purchase price of $50,000 and has installation costs of $3,000.The asset will be depreciated over its five-year useful life using the straight-line method.The new asset is expected to increase sales by $17,000 and non-depreciation expenses by $2,000 annually over the useful life of the asset.Due to the increase in sales,the firm expects an increase in working capital during the asset's useful life of $1,500,and the firm expects to be able to sell the asset for $6,000 at the end of its useful life.The existing asset was originally purchased three years ago for $25,000,has a remaining useful life of five years,and is being depreciated using the straight-line method.The expected salvage value at the end of the asset's useful life (i.e. ,five years from now) is $5,000;however,the current sale price of the existing asset is $20,000,and its current book value is $15,625.The firm's marginal tax rate is 34 percent and its required rate of return is 12 percent.
-If the new machine is purchased,operating cash flow for years 1 through 5 will increase or decrease by how much?

• A)Increase by $15,000
• B)Decrease by $9,900
• C)Increase by $12,142
• D)Increase by $5,346

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Definitions:

Self-efficacy

An individual's belief in their own capability to execute behaviors necessary to produce specific performance attainments.

Healthy Lifestyle Change

Modifications or adaptations made to one's behavior, diet, and activities aimed at improving health and well-being.

Transactional Model

A framework for understanding the dynamic exchange between individuals and their environment where both are changed through interaction.

Lazarus and Folkman

refer to psychologists Richard Lazarus and Susan Folkman, known for their work on stress, appraisal, and coping processes.