Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
________________________________________________________ *Not applicable
-For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2)

Question

Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
________________________________________________________  *Not applicable
-For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2)

Quizplus · Accepted Answer

For Proposal 3, the incremental depreciation expense for year 3 is calculated as follows:
Incremental cost = $350,000 - $210,000 = $140,000
Annual depreciation = $140,000 / 3 = $46,667
Incremental depreciation expense for year 3 = $46,667 x 1.02 x 0.4 = $19,040
Total depreciation expense for year 3 = $28,810 + $19,040 = $47,850
Therefore, the answer is C.

As for the best choice(s), without knowing the company's specific financial situation and investment objectives, it is difficult to determine the best choice(s). The decision should be based on a comprehensive analysis of each proposal's cash flows, payback period, net present value, and internal rate of return, among other factors.

Table 11.2 Computer Disk Duplicators, Inc. Has Been Considering Several Capital Investment