Your Firm Needs a Computerized Line-Boring Machine Which Costs $80,000

Multiple Choice

Your firm needs a computerized line-boring machine which costs $80,000, and requires $20,000 in maintenance for each year of its three year life. After three years, the salvage value will be zero. The machine falls into the Class 10 equipment category (CCA rate 30%) .

Assume a tax rate of 34% and a discount rate of 10%. Assume the machine can be sold for $10,000 at the end of year 1. Compute the present value of the pre-tax salvage value at the end of year 3.

A) $10,000
B) $7,513
C) $6,600
D) $8,616
E) $9,678