The Alpha Beta Corporation sells a capital asset with an original cost of $85 000 and accumulated depreciation of $54 500 for $25 000.Alpha Beta's tax rate is 40%.Calculate the after-tax cash inflow from the disposal of the capital asset.

Question

Quizplus · Accepted Answer

To calculate the after-tax cash inflow from the disposal of the capital asset, we need to use the following formula:

After-tax cash inflow = Sales proceeds - Tax liability - Book value

The book value of the asset is calculated as follows:

Book value = Original cost - Accumulated depreciation
Book value = $85,000 - $54,500
Book value = $30,500

The tax liability is calculated as follows:

Tax liability = (Sales proceeds - Book value) x Tax rate
Tax liability = ($25,000 - $30,500) x 40%
Tax liability = $2,200

Therefore, the after-tax cash inflow from the disposal of the capital asset is:

After-tax cash inflow = $25,000 - $2,200 - $30,500
After-tax cash inflow = $27,200

So, the best choice is C, which represents the correct answer.

The Alpha Beta Corporation Sells a Capital Asset with an Original