XYZ Corporation Is Contemplating the Replacement of an Existing Asset

question 3

Multiple Choice

XYZ Corporation is contemplating the replacement of an existing asset used in the operation of its business.The original cost of this asset was $28,000;since date of acquisition,the company has taken a total of $20,000 of depreciation expense on this asset.The current disposal (market) value of this asset is estimated as $18,000.XYZ is subject to an income tax rate of 34%.What is the projected after-tax cash flow associated with the sale of the existing asset?

• A)$18,000
• B)$10,000
• C)$14,600
• D)$8,000
• E)$11,400

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Definitions:

Corporate Raiders

Investors who buy a large stake in a corporation with the goal to gain control and make changes to increase its value and their profit.

Hostile Takeovers

Hostile takeovers occur when a company acquires another company against the wishes of the target company's management and board of directors.

WACC

Weighted Average Cost of Capital, or WACC, is a financial metric that calculates the cost of capital for a business, weighting each capital segment according to its relative proportion.

Discount Rate

This is the interest rate applied in calculating the present value of cash flows that are expected in the future, using the discounted cash flow approach.