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

---

Definitions:

Unlimited Liability

A legal status where the business owner's personal assets can be used to satisfy the debts and liabilities of the business.

Board of Directors

A group of individuals elected by the shareholders of a corporation to oversee and make decisions regarding the company's direction and policies.