A corporation has decided to replace an existing asset with a newer model. Two y

Question

A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $25,000. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40% on ordinary income and capital gains, what is the initial investment?

A. $52,440 B. $54,240 C. $50,000 D. $42,000

Explanation / Answer

B. $54,240

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