Cubbies Pty Ltd Is Considering the Purchase of a New

question 27

Multiple Choice

Cubbies Pty Ltd is considering the purchase of a new machine to replace an old machine. Selected cost data pertaining to the two machines is provided below.
At the end of four years, the company plans to discontinue the product line for which the machines are used. Income taxes can be ignored. Using the incremental cost approach, calculate the current period (i.e. year zero) cash flows relevant to acquiring the new machine.

• A) $9000 outflow
• B) $4000 inflow
• C) $3000 outflow
• D) $5000 outflow

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Definitions:

Wash Sale Rules

IRS regulations that disallow the claim of a capital loss for tax purposes if a substantially identical security is purchased within 30 days before or after the sale.

Loss Disallowed

A financial loss that cannot be deducted from taxable income as per tax regulations, often due to specific restrictions or limitations.

Personal Residence

The primary dwelling in which a person lives, often eligible for certain tax benefits, like the deduction of mortgage interest and property taxes.

Gain Recognize

Gain Recognize refers to the process of reporting the profit earned from the sale of an asset for tax purposes.