The Manager of Malan Pty Ltd Wants to Buy a New

question 90

Multiple Choice

The manager of Malan Pty Ltd wants to buy a new machine to replace the one currently being used. The new machine will cost $100 000 with no disposal value at the end of a five-year useful life. The manager estimates that the machine will reduce annual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate for each year is expected to be 20 per cent and the company has an after-tax hurdle rate of 12 per cent. What is the annual after-tax cash flow for years 1 to 5 associated with the purchase of the new machine?

• A) $30 000
• B) $28 000
• C) $24 000
• D) $22 000

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