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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?

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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

$2.19