resultax treatment regarding the sale of existing sets that are sold for B). an ord i n tax liabilit

resultax treatment regarding the sale of existing sets that are sold for B). an ord i n tax liability and recaptured depreciation taxed ordinary income B) an ordinary tax benefit C) no tax benefit or liability D) recaptured depreciation taxes ordinary income Table 11.2 RODOVES computer Disk Duplicators. In has been considering several capital investment proposals for the year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment The firm is subject to a 40 peront tax rate on ordinary income and on long-term capital gains The firm's cost of capital is 15 percent. Type of Capital Dopo Budgeting Decision is Decision Expansion Replacement Replacement Mutually MACRS RATE Exclusive Type of Project 3 years 5 years 7 years 10 years Independent with 2 3390 2094 1494 Cost of new asset $15000 200000 Installation costs $0 $15,000 MACRS (new asset) 10 years 5 years 5 years Original cost of old asset N/A $90,000 $100,000 Purchase date (old asset) NIA 1/1/2010 1/1/2013 Sale proceds (old asset) N/A $50,000 $120.000 MACRS (old asset) N/A 5 years 5 years Annual net profits before depreciation & taxes (old) N/A $30,000 $25,000 Annual net profits before depreciation & taxes (new) $250,000 $175.000 $100,000 111 *Not applicable o osfosfor lalalala 10 27. For Proposal I, the initial outlay equals (See Table 11.2) A) $1.620,000 B) $1,380,000 C) $1,440,000 D) $1,500,000 28. For Proposal 1, the depreciation expense for year 2 is (See Table 11.2) A) $270,000 B) $115,200 C) $150,000 D) $300,000 29 For Proposal I, the annual incremental after-tax cash flow from operations for year 2 is (See Table 11.2) A) 60,000 B) $300,000 C) $258,000 D) $210,000

 

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