1. Assume the following for a piece of equipment assuming straight-line depreciation: Purchase price $20,000; installation costs of $2,500; 4-Yr useful life with an estimated salvage value of $4,500; tax rate 40%; What would be the cash flow from salvage if the asset sold after 2 years for (a) $15,000 and (b) $11,500?

A. 7,800 ; 11,700

B. 14,400 ; 12,300

C. 15,300 ; 6,200

D. 11,700 ; 800

2. In a replacement decision, if an old asset sells below its book value

a gain has incurred.

a loss has incurred.

there is no gain or loss since it is replaced.

the net present value is negative.