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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?

Definitions:

Normal Distribution

A symmetric probability distribution that is characterized by a bell-shaped curve, relevant in statistical analyses.

Test Statistic

A value computed from sample data used to determine whether to reject the null hypothesis in a statistical hypothesis test.

Confidence Interval

A scope of values from statistics of a sample, seen as likely to possess the value of an unspecified population feature.

Gas Mileage

The efficiency of a vehicle in terms of the distance traveled per unit of fuel consumed, typically measured in miles per gallon (mpg) or kilometers per liter (km/L).