A Corporation Has Decided to Replace an Existing Asset with a Newer

question 83

Multiple Choice

A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $25,000. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ________.

• A) $42,000
• B) $52,440
• C) $54,240
• D) $50,000

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Definitions:

Deficit

The financial situation in which expenditures exceed revenues over a specified period, leading to borrowing or depletion of funds.

Trade Surplus

A situation where the value of a country's exports exceeds the value of its imports over a given period.

Goods

Physical items that satisfy human wants or needs, which can be transferred from one person to another and include both consumer and capital goods.