Chapter 21, Problem 21.20MCQ

Nick’s Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 20,000 units with an expected selling price of $10, prime costs of $6 per unit, and a fixed cost allocation of $3 per unit. Annual depreciation on the machine is $12,000, and the tax rate of the company is 25%.

What is the annual cash flow generated from the new machine?

1. a. $63,000
2. b. $51,000
3. c. $18,000
4. d. $6,000