A firm is selling an old asset below book value in a replacement decision. As the firm's tax rate is raised, the net cash outflow (purchase price less proceeds from the sale of the old asset plus CCA effects) would

Question

Quizplus · Accepted Answer

As the tax rate is raised, the tax savings from the CCA effects on the new asset will increase. This will reduce the net cash outflow, as the tax savings will offset some of the cost of purchasing the new asset. Therefore, the net cash outflow will go down.

A Firm Is Selling an Old Asset Below Book Value