Trust Engineering Company Is Considering the Purchase of a New

Multiple Choice

Trust Engineering Company is considering the purchase of a new machine to replace an existing one. The old machine was purchased 5 years ago at a cost of $20,000, and it is being depreciated on a straight line basis to a zero salvage value over a 10-year life. The current market value of the old machine is $14,000. The new machine, which falls into the MACRS 5-year class, has an estimated life of 5 years, it costs $30,000. The change in depreciation expense to be considered while capital budgeting for this machine is _____. The MACRS rates for 5-year class are Year 1-20%, Year 2-32%, Year 3-19%, Year4-12%, Year 5-11%, Year 6-6%.

A) $10,500
B) $23,400
C) $44,000
D) $20,000
E) $17,000