Question

A firm is evaluating the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. The computer is expected to be used for 3 years and then be sold for $10,000, when the book value is $3,000. The firm's marginal tax rate is 40%. What will be the tax consequence from the sale of the computer at the end of year 3? $2,800 tax on gain $4,000 tax on gain tax savings of $1,200 tax savings of $4,000

          A firm is evaluating the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS
3-year class. The computer is expected to be used for 3 years and then be sold for $10,000, when the book value is $3,000. The
firm's marginal tax rate is 40%. What will be the tax consequence from the sale of the computer at the end of year 3?
$2,800 tax on gain
$4,000 tax on gain
tax savings of $1,200
tax savings of $4,000

A firm is evaluating the proposed acquisition of a new computer. The computer's price is 40,000, and it falls into the MACRS
3-year class. The computer is expected to be used for 3 years and then be sold for10,000, when the book value is 3,000. The
firm's marginal tax rate is 40%. What will be the tax consequence from the sale of the computer at the end of year 3?2,800 tax on gain
4,000 tax on gain
tax savings of1,200
tax savings of 4,000

Added by James T.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Charles Machakwa

Step 1

The MACRS depreciation rates for a 3-year class are 33.33%, 44.45%, 14.81%, and 7.41% for years 1, 2, 3, and 4 respectively. Year 1 depreciation expense = $40,000 * 33.33% = $13,332 Year 2 depreciation expense = $40,000 * 44.45% = $17,780 Year 3 depreciation Show more…

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A firm is evaluating the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. The computer is expected to be used for 3 years and then be sold for $10,000 when the book value is $3,000. The firm's marginal tax rate is 40%. What will be the tax consequence from the sale of the computer at the end of year 3? A. $2,800 tax on gain B. $4,000 tax on gain C. Tax savings of $1,200 D. Tax savings of $4,000