An after-market auto parts company sells a machining robot that had been depreciated to zero for $16,000. If the company’s effective tax rate is 36%, the sale will: (choose one)
(a) Increase the company’s taxes by $16,000
(b) Increase the company’s taxes by $5760
(c) Reduce the company’s taxes by $16,000
(d ) Reduce the company’s taxes by $5760
The sale results in DR = $16,000, which is an increase in TI.
Tax increase = 16,000(0.36) = $5760
Answer is (b) Increase the company’s taxes by $5760
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