6. An industrial machine was purchased for $500,000, and an additional $50,000 w

Question

6. An industrial machine was purchased for $500,000, and an additional $50,000 was required for site prep and installation labor. The freight for the delivery was $10,000. The company received a trade-in allowance of $75,000 on an old machine which had a book value of 0,000. What is the cost basis of this asset for depreciation purposes? a. $500,000 b. $560,000 c. S500,000 d. $485,000 e. $545,000 7. Given the sensitivi below, which of the following statements is most accurate? 300 250 200 150 100 50 "? -10% 0% *10% .20% +.30% 50 100 a. If I can only concentrate on getting the best forecasts of one variable, it should be b. If I expect up to 25% error may exist in my forecast for all of these variables, c. Making sure I have a good estimate of Variable D is extremely important in d. Variable B is the sales revenue in this example. Variable A because it has the largest negative slope. the acceptance of this project may be at risk planning this project. 8. At the end of a project's life, an asset will be disposed. The project's cash flow statement will show a small gains tax credit (positive cash flow). Which of these statements must be true? a. b. c· d. e. The asset will be sold for less than its book value The asset will be sold for more than its book value but less than its original cost. The asset will be sold for more than its original cost. The asset was sold for the exact amount of its book value There is not enough information to answer this question.

Explanation / Answer

6. Cost = Purchase + installation + freight charges - in trade allowance of old machine + book value of old machine

Cost = $(500,000 + 50,000 + 10,000 - 75,000 + 60,000) = $545,000

Correct answer option e. $545,000.

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