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Cash Inflow/Net cost

I cannot find any help in the textbook for this problem. As I'm taking an online course, finding alternative forms of help proves difficult. Here's the problem:

Bar T Ranches, Inc. is considering buying a new helicopter for $350,000. The company's old helicopter has a book value of $85,000, but will only bring $60,000 if it is sold. The old helicopter can be depreciated at the rate of $13,500 per year for the next four years. The new helicopter can be depreciated using the 5-year MARCS schedule. The new helicopter is expected to save $62,000 after taxes through reduced fuel and maintenance expenses. Bar T Ranches is in the 34% tax bracket and has a 12% cost of capital.

a. What is the cash inflow from selling the old helicopter?

b. What is the net cost of the new helicopter?

Solution Preview

a. The old helicopter is being sold at a price below the book value. There will be a capital loss and so there will be a tax benefit. The capital loss is ...

Solution Summary

The solution explains how to calculate the cash inflow from sale and the net cost of the helicopter