1) The Wise Co. purchased a new truck two years ago for $129,501. The truck belongs in CCA class 10, a 30% class. The company is in the 34% marginal tax bracket. Today the company received an offer of $74,900 for the truck. What will be the net cash flow from the sale if the company decides to sell the truck today and if the CCA pool is terminated as a result of the sale?

A. $24,615

B. $50,285

C. $62,160

D. $66,492

E. $75,632

2)

Your firm needs a computerized line-boring machine which costs $80,000, and requires

$20,000 in maintenance for each year of its three year life. After three years, the salvage value

will be zero. The machine falls into the Class 10 equipment category (CCA rate 30%).

Assume a tax rate of 34% and a discount rate of 10%.

Assume the machine can be sold for $10,000 at the end of year 1. Compute the present value

of the pre-tax salvage value at the end of year 3.

A. $10,000

B. $7,513

C. $6,600

D. $8,616

E. $9,678

3)

. The Triton Company just purchased a $132,650 piece of equipment that belongs in a

20% CCA class. The company has a marginal tax rate of 34% and a discount rate of 16%.

What are the after-tax proceeds from the sale of this equipment if the company sells it after

four years at a selling price of $61,125? (Assume that Triton has additional pieces of similar

equipment.)

A. $39,650

B. $55,968

C. $59,589

D. $61,125

E. $66,032

4)

A furniture manufacturer is planning on buying a new industrial sander costing $118,000

and belonging in a 30% CCA class. The sander has projected maintenance costs of $16,000

annually over the three-year life of the sander. At the end of the three years, the sander will be

worthless and will be scrapped. The company has a 34% tax rate, a 16% discount rate. What

is the equivalent annual cost?

A. $36,520

B. $47,892

C. $52,254

D. $55,333

E. $68,540

5)

A machine costs $60 and requires $35 in maintenance for each year of its three year life.

After three years, this machine will be replaced. If the machine belongs in a 30% CCA class

and has no salvage value, what is the EAC? Assume a tax rate of 34% and a discount rate of

14%.

A. -$39.48

B. -$43.32

C. -$48.33

D. -$59.13

E. -$97.84

6)

Jake's Auto Sales currently sells $3.4 million of new vehicles and $1.7 million of used

vehicles a year. Jake is considering expanding his operations and adding an imported car to

his lineup. Should he do this, he expects to sell $680,000 worth of imported cars per year.

However, he also expects to lose about $450,000 of his upper end current sales. The

expansion will necessitate spending $78,000 to add an additional showroom onto the current

facility. What is the erosion cost associated with this expansion project?

A. $230,000

B. $308,000

C. $372,000

D. $450,000

E. $528,000