2. A company paid $200,000 eight years ago for a specializedmachine that has no salvage value and is being depreciated at therate of $20,000 per year. The company is considering using thismachine in a new project that will have incremental revenues of$35,000 per year and annual cash costs of $17,000. In analyzing thenew project, the $200,000 cost of the old machine is an example ofa(n)? A. sunk cost. B. out-of-pocket cost. C. opportunity cost. D.incremental cost.
2. A company paid $200,000 eight years ago for a specializedmachine that has no salvage value and is being depreciated at therate of $20,000 per year. The company is considering using thismachine in a new project that will have incremental revenues of$35,000 per year and annual cash costs of $17,000. In analyzing thenew project, the $200,000 cost of the old machine is an example ofa(n)? A. sunk cost. B. out-of-pocket cost. C. opportunity cost. D.incremental cost.
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Related questions
1)
A company is considering the purchase of a new machine for$66,000. Management predicts that the machine can produce sales of$22,000 each year for the next 10 years. Expenses are expected toinclude direct materials, direct labor, and factory overheadtotaling $10,400 per year including depreciation of $5,800 peryear. The company's tax rate is 40%. What is the payback period forthe new machine? |
3.00 years.
6.73 years.
5.17 years.
11.38 years.
17.19 years.
2)
Butler Corporation is considering the purchase of new equipmentcosting $84,000. The projected annual after-tax net income from theequipment is $3,000, after deducting $28,000 for depreciation. Therevenue is to be received at the end of each year. The machine hasa useful life of 3 years and no salvage value. Butler requires a 9%return on its investments. The present value of an annuity of 1 fordifferent periods follows: |
| Periods | 9 Percent |
| 1 | 0.9174 |
| 2 | 1.7591 |
| 3 | 2.5313 |
| 4 | 3.2397 |
| What is the net present value ofthe machine? (closest to) |
$70,876.
$78,470.
$9,000.
$84,000.
$(5,530).
3)
A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000for the next 5 years. The $19,000 cost is an example of a(n):
Sunk cost.
Fixed cost.
Incremental cost.
Uncontrollable cost.
Opportunity Cost
