In a replacement investment, new equipment will cost $100,000 and sales tax paid

Question

In a replacement investment, new equipment will cost $100,000 and sales tax paid on new equipment (to be capitalized) is 7% of the purchase price. Old equipment that would be replaced can be sold currently for $40,000, and carries accumulated depreciaion of $25,000. The original cost of the old equipment is $70,000. The firm considering this replacement is a 40% taxpayer. What is the replacement investment's net initial after-tax cash outlay? PLEASE SHOW WORK TO GET YOUR 5 STARS GUYS Answer a. ($69,000) b. ($57,000) c. ($97,000) d. ($65,000)

Explanation / Answer

Hi, Total Cost of new investment = 100000 + 7000 = 107000 - Sales Value of old equipment = 40000 Net Value = 67000 Less Loss on sales old equipment = 70000 - 25000 - 40000 = 5000 Tax Saving on loss = 5000^,.40 = 2000 Total Cash Outlay = 67000 - 2000 = 65000 Thanks, Aman

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