Suppose a machine costs $20,000 now,has an expected life of eight years,and will require a $7,000 overhaul at the end of the third year.If the tax rate is 40%,what would be the after-tax cost of this overhaul?
A) $2,800.
B) $4,200.
C) $8,000.
D) $12,000.

Question

Quizplus · Accepted Answer

The after-tax cost of the overhaul can be calculated using the formula: 
After-tax cost = Pre-tax cost - Tax savings 
Pre-tax cost = $7,000 
Tax savings = Tax rate x Pre-tax cost 
Tax savings = 0.4 x $7,000 = $2,800 
After-tax cost = $7,000 - $2,800 = $4,200. Therefore, option B is the correct answer.

Suppose a Machine Costs $20,000 Now,has an Expected Life of Eight