You are buying a new truck in order to grow your local moving service. The new t

Question

You are buying a new truck in order to grow your local moving service. The new truck costs $37,000. You will need to spend another $6,000 on hitches, ramps, and other special equipment for this use. You will use this truck for 4 years and then you plan that the salvage value will be $8,000.

The new truck should increase revenue by 40% over last year's $85,000 revenue. As a result of the truck purchase, operating expenses will increase by $11,000. The depreciation expense will increase by $2500. Your marginal tax rate is 35%.

In year 4, you sell the truck for $12,000. How much will you owe in taxes? (answers provided in $)

Explanation / Answer

c.$1,400.

tax on sale of truck = (sale value - book value) *tax rate.

=>(12,000 - 8,000)*35%

=>$1,400.

since the salvage value of truck is readily given as $8,000, the book value of truck can be taken as $8,000.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.