The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $ 36 ,000. The old machine, which originally cost $ 33 ,000, has 3 years of expected life remaining and a current book value of $ 23 ,000 versus a current market value of $ 29 ,000. Target's corporate tax rate is 30 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.
Book value of old machine = $23000
Market value = $29000
Gain on Sale = $6,000
Tax on gain = 6000*30% = $1,800
After tax salvage value of old machine = 29000-1800 = $27,200
Initial outlay of new machine = After tax salvage value of old machine - Cost of new machine
= 27200-36,000
= -$8,800
The Target Copy Company is contemplating the replacement of its old printing machine with a new...
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REPLACEMENT ANALYSIS
The Bigbee Bottling Company is contemplating the replacement of
one of its bottling machines with a newer and more efficient one.
The old machine has a book value of $575,000 and a remaining useful
life of 5 years. The firm does not expect to realize any return
from scrapping the old machine in 5 years, but it can sell it now
to another firm in the industry for $235,000. The old machine is
being depreciated by $115,000 per...