A corporation has decided to replace an existing asset with a newer model. Two y
ID: 2702318 • Letter: A
Question
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% on ordinary income and capital gains, what is the initial investment?
A. $52,440 B. $54,240 C. $50,000 D. $42,000
Explanation / Answer
B. $54,240