LISP Inc. is planning to purchase a new mixer/dubber for $50,000. The new equipment will replace an older mixer that has been fully depreciated but has a salvage value of $5,000. Compute the net investment required for this project. Assume a marginal tax rate of 40 percent.
A)$47,000
B)$45,000
C)$48,000
D)None of the above

Question

Quizplus · Accepted Answer

The net investment required is the cost of the new mixer ($50,000) minus the after-tax salvage value of the old mixer. The after-tax salvage value is $5,000 * (1 - 0.40) = $3,000. Therefore, the net investment is $50,000 - $3,000 = $47,000.

LISP Inc Is Planning to Purchase a New Mixer/dubber for $50,000