Cyber Monday 2023! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: CM25OFF
Welcome to Pass4Success

- Free Preparation Discussions

IMANET Exam CMA Topic 3 Question 66 Discussion

Actual exam question for IMANET's Certified Management Accountant exam
Question #: 66
Topic #: 3
[All Certified Management Accountant Questions]

A company is considering the purchase of a new machine to replace a five-year old machine and has gathered the following information: Purchase price of new machine $50,000 Installation cost of new machine 4,000 Market value (selling price) of the old machine 5,000 Book value of the old machine 2,000 Increase in net working capital if new machine is installed 1,000 Effective income tax rate 40% It the company replaces the old machine with the new machine, what is the cash flow in period 0?

Show Suggested Answer Hide Answer
Suggested Answer: B

The net initial investment for a capital project consists of three components: the purchase of new equipment, the increase in working capital, and the after-tax proceeds from the disposal of old equipment For this company, the first of these is $54,000 ($50,000 + $4,000), and the second is $1,000. The calculation of the after-tax proceeds from the disposal of the old equipment is as follows:


Currently there are no comments in this discussion, be the first to comment!

Save Cancel