The Target Copy Company is contemplating the replacement of its old printing mac

Question

The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $ 43 ,000. The old machine, which originally cost $ 31 ,000, has 5 years of expected life remaining and a current book value of $ 15 ,000 versus a current market value of $ 24 ,000. Target's corporate tax rate is 32 percent. If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine? Since this is a cash outlay, be sure to use the - sign when writing your answer.

Explanation / Answer

If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine?

Initial after tax outlay = 24000- (24000-15000)*32% - 43000 = - $ 21880

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