A company is evaluating the possible replacement of equipment. New equipment wou

Question

A company is evaluating the possible replacement of equipment. New equipment would cost $92,325, and sales tax on the purchase would be 6%. Both the purchase price and sales tax would be capitalized. The old equipment had an original purchase price of $70,000 and accumulated depreciation of $32,000 has been taken. The old equipment can be sold currently for $28,899, and the company pays taxes at a rate of 37%. What is the initial cash outlay necessary to replace the existing equipment? Round your answer to the nearest whole dollar.

Explanation / Answer

Sale proceeds from old equipement = $ 28899 , As the sale value is less than the carrying value so there is no tax on the sale proceeds

Initial cash outlay

cost of new equipment             = $ 92325

ADD : slaes tax @ 6%             = $ 5540

less sales proceeds of old machine        = $ 28899

net out flow                                              = $ 68966

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