Table 11.3 Cuda Marine Engines, Inc. Must Develop the Relevant Cash Flows

Multiple Choice

Table 11.3
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.
-The incremental depreciation expense for year 1 is ________. (See Table 11.3)

A) $2,250
B) $7,600
C) $7,000
D) $7,950