1) Trust Engineering Company is considering the purchase of a new machine to replace an existing one. Useful information is bulleted below.

• The old machine was purchased 5 years ago at a cost of $20,000, and it is being depreciated on a straight line basis to a zero salvage value over a 10-year life.

• The current market value of the old machine is $14,000.

• The new machine, which falls into the MACRS 5-year class, has an estimated life of 5 years, it costs $30,000.

• The MACRS rates for 5-year class assets are: Year 1 = 20%, Year 2 = 32%, Year 3 = 19%, Year 4 = 12%, Year 5 = 11%, Year 6 = 6%)

2) The total change in depreciation expense over the useful life of the new machine to be considered while capital budgeting is closest to:

a.

$10,500

b.

$18,200

c.

$23,400

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