Purchase Solution

# Calculating the net initial investment

Not what you're looking for?

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.

14. Compute the initial purchase price for an asset with book value of \$34,800 and total accumulated depreciation of \$85,200.

15. 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.

##### Solution Summary

The solution depict the steps to estimate the initial investments in the given cases.

##### Solution Preview

13. 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

Depreciation rate for year 1=20%
Depreciation rate for year 1=32%
Accumulated ...

Solution provided by:
###### Education
• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
###### Recent Feedback
• "Thank you"
• "Really great step by step solution"
• "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
• "Thanks Again! This is totally a great service!"
• "Thank you so much for your help!"

##### Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

##### Introduction to Finance

This quiz test introductory finance topics.

##### Operations Management

This quiz tests a student's knowledge about Operations Management

##### Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.