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    Tax effect of transaction

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    A firm is selling an existing asset for $5000. The asset when purchased cost $10,000, was depreciated under MACRS using a five-year recovery period and has been depreciated for four full years. If the assumed tax rate is 40% on ordinary income and capital gains, the tax effect of this transaction is:

    A. $0 tax liability

    B. $1,160 tax liability

    C. $ 1,320 tax liability

    D. $2.000 tax liability

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    Solution Preview

    From the table of MACRS for 5-year property, the depreciation rates for first four years are ...

    Solution Summary

    The solution gives step-by-step calculation with brief explanation.