A new tire balancing machine is available to replace an existing one.The new one will cost $5,092.The old one originally cost $2,594 and was being depreciated over its 3-year life using MACRS.Two years have passed since the old one was purchased.Shipping of the new machine will cost $320.Assume a 40% tax rate.What is the net initial cash flow? Assume the old machine cannot be sold.(Round answer to nearest dollar.)
MACRS Depreciation Rates

Question

Quizplus · Accepted Answer

Initial Cash Flow = -(Price of new asset) + (Net Salvage value of old asset) Net Salvage value = S - Tax on Sale Tax on sale = T × (S - B) 11ea7fdb_fc87_44a9_a768_477603d3daa2_TB2902_00 ADepr = $2,017.61 B₂ = $2,594 - $2,017.61 = $576.39 Tax on Sale = 0.4 × (0 - $576.39) = -$230.55 Net Salvage = 0 - (-$230.55) = $230.55 Initial Cash Flow = -$5,092 - $320 + $230.55 = $5,181.45 or $5,181

A New Tire Balancing Machine Is Available to Replace an Existing