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

question 25

Multiple Choice

A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $70,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $30,000. The new asset will cost $80,000 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) $48,560
• B) $44,360
• C) $49,240
• D) $27,600

---

Definitions:

Population of Interest

A specific group of individuals or entities that a researcher or study aims to understand or draw conclusions about.

Independent Variable

In a study, the variable that the researcher alters to determine its impact on the dependent variable.

Dependent Variable

In an experiment, the variable that is observed and measured for change, thought to be influenced by the independent variable.

Illusory Correlation

The belief in a connection between two variables despite the absence of any actual relationship.