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

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Definitions:

Labor Costs

The total sum of all wages paid to employees, as well as the costs of employee benefits and payroll taxes incurred by an employer.

Pay Range

A set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade.

Minimum Pay

The lowest legal salary that an employer can pay to an employee.

Maximum Pay

The highest salary or wage rate that an employee can earn in a specific job or position.