The Manager of Malan Pty Ltd Wants to Buy a New

question 53

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 after-tax accounting rate of return computed based on the initial investment?

• A) 8%
• B) 20%
• C) 4%
• D) 10%

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Definitions:

Confusing

Lacking clarity or easy understanding, often leading to uncertainty or misunderstanding.

Multi-attribute Utility Analysis

is a systematic approach used to evaluate and compare choices, by considering multiple criteria and assigning weights to them.

Functional Forms

Mathematical relationships or equations that describe how variables are related, often used in statistical modeling to explain or predict outcomes.

Weights

Objects used for resistance training, designed to increase strength, fitness, and muscular development.