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IMANET Exam CMA Topic 1 Question 95 Discussion
Topic #: 1
The Dickens Corporation is considering the acquisition of a new machine at a cost of $180,000. Transporting the machine to Dickins' plant will cost $1 2.000. Installing the machine will cost an additional $18,000. It has a 10-year life and is expected to have a salvage value of $10,000. Furthermore, the machine is expected to produce 4.000 units per year with a selling price of $500 and combined direct materials and direct labor costs of $450 per unit. Federal tax regulations permit machines of this ripe to be depreciated using the straight-line method over 5 years with no estimated salvage value. Dickens has a marginal tax rate of 40%. What is the net cash outflow at the beginning of the first year that Dickens should use in a capital budgeting analysis?
Delivery and installation costs are essential to preparing the machine for its intended use. Thus the company must initially pay $2 10.000 for the machine, consisting of the invoice price of $180,000. the delivery costs of $1 2,000, and the $18,000 of installation costs.
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