For Proposal 3, the tax effect on the sale of the existing asset results in ________. (See Table 11.2)
Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2019. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
A) $8,000 tax liability
B) $16,000 tax liability
C) $20,000 tax liability
D) $23,200 tax liability
B) $16,000 tax liability
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Indicate whether the statement is true or false.
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