AFB, Inc is considering replacing an old machine with a new one. Two months ago their chief
engineer completed a training seminar on the new machine's operation and efficiency. The 3,000
cost for this training session has already been paid.
If the new machine is purchased, it would
require 7,000 in installation and modification costs to make it suitable for operation in the factory.
The old machine originally cost 80,000 five years ago and is being depreciated by 10,000 per year.
The new machine will cost 100,000 before installation and modification. It will be depreciated by
12,000 per year. The old machine can be sold today for 12,000. The marginal tax rate for the firm
is 40. Compute the relevant initial outlay in this capital budgeting decision.
A) 97,800 B) 90,800 C) 79,500 D) 87,800
Question 2
Preferred stockholders' rights come before those of bondholders.
Indicate whether the statement is true or false
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