Question

Miller Dental, Inc. is considering replacing its existing laser checking system, which was purchased 3 years ago at a cost of $400,000. The laser checking system can be sold for a lump sum of $200,000. It is being depreciated using MACRS and a 5-year recovery period. A new laser checking system will cost $750,000 to purchase and install. Replacement of the planned laser checking system would not involve any change in net working capital. Assuming a 20% tax rate, calculate the initial investment:
Select one:
a. 466,800
b. 416,800
c. 566,800
d. 516,800

Which of the following is FASLSE?
Select one:
a. Systematic risk is that portion of an asset's risk that is attributable to firm-specific, random causes.
b. Nondiversifiable risk reflects the contribution of an asset to the risk, or standard deviation, of the portfolio.
c. Diversified investors should be concerned solely with nondiversifiable risk because they can easily create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.
d. The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Please Solve As soon as
Solve quickly I get you two UPVOTE directly
Thank's
Abdul-Rahim Taysir

Answer 1

Selling Price of Old Machine = 200,000
Book Value of Old Machine = Purchase price of the old machine - Accumulated Depreciation (from year 1 to 3)
= 400,000 - 284,800
Book Value of Old Machine = 115,200

Tax on Profit = Tax Rate * (Selling price of the old machine - Book Value of the old machine)
= 20% * (200,000 - 115,200)
= 16,960

Proceeds After-Tax = Selling price of the old machine - Tax
= 200,000 - 16,960
= 183,040

Total Initial Investment = Purchase price of a new machine - Sales proceeds after tax received from the old machine
= 750,000 - 183,040
Total Initial Investment = $566,960

2) a) FALSE
Systematic risk is the risk that affects the entire market and not a particular firm or sector. It is also called as market risk and it is undiversifiable.

Rest all statements are TRUE