1. The initial outlay calculation for an ____ project normally includes ____.

asset expansion; pretax proceeds from the sale of the old asset

asset replacement; pretax proceeds from the sale of the old asset

asset replacement; after-tax proceeds from the sale of the old asset

asset expansion; after-tax proceeds from the sale of the old asset

2. There is a capital gain on the sale of an asset for:

more than its original cost.

more than its book value but less than its original cost.

"more than its original cost" and "more than its book value but less than its original cost".

None of these choices are correct.

3. The initial outlay calculation for an asset replacement decision normally includes any:

after-tax salvage value of the old asset.

an initial buildup in net working capital.

interest expense.

"after-tax salvage value of the old asset" and "an initial buildup in net working capital".

4. A new replacement machine is being considered that will save $105,000 per year in labor cost and $20,000 on maintenance. The company's marginal tax rate is 34%. The replacement will also generate a tax savings from depreciation of $5,000. Estimate the incremental cash flow for the first year associated with buying the new machine.

$87,500

$42,500

$51,100

$82,500