Bodacious Company Is Considering the Purchase of a New Machine

question 51

Multiple Choice

Bodacious Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the annual net after-tax cash flow (rounded) ?

• A)$23,667
• B)$8,633
• C)$6,400
• D)$28,778

---

Definitions:

Obligation

A duty or commitment to pay money or perform some action.

Equivalent

Equal in value, amount, function, meaning, or status; often used in mathematics to describe expressions or amounts that are the same when compared or evaluated.

Compounded Quarterly

Refers specifically to the computation of interest at four intervals in a year, on the initial investment alongside the interest from preceding periods.

Repaid

The act of paying back money previously borrowed from a lender.