You own some equipment which you purchased three years ago at a cost of $135,000

Question

You own some equipment which you purchased three years ago at a cost of $135,000. The equipment is depreciated straight-line to zero over the course of 5 years. You are considering selling the equipment today for $82,500. Which one of the following statements is correct if your tax rate is 34 percent?

A. The tax due on the sale is $9,690.

B. The book value today is $81,000.

C. The book value today is $0.

D. The taxable amount on the sale is $38,880.

E. You will receive a tax refund of $13,219.20 as a result of this sale.

Show work please

A project will produce operating cash flows of $45,000 a year for four years. The project requires the purchase of equipment at an initial cost of $120,000 and additional investment in net working capital of $5,000 (which will be fully recovered at the end of project

Explanation / Answer

You own some equipment which you purchased three years ago at a cost of $135,000. The equipment is depreciated straight-line to zero over the course of 5 years. You are considering selling the equipment today for $82,500. Which one of the following statements is correct if your tax rate is 34 percent?

The answer is A: The tax due on the sale is $9,690.

$135,000 / 5years = $27,000 depreciation a year.

After 3 years, the book value will be $135,000 - (3)($27,000) = $54,000

Tax owed = ($82500 - $54000)*.34 = $9690

Show work please

A project will produce operating cash flows of $45,000 a year for four years. The project requires the purchase of equipment at an initial cost of $120,000 and additional investment in net working capital of $5,000 (which will be fully recovered at the end of project

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