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George Washington Insurance Co. is a large CMS intermediary that serves the Midwest states. To increase the efficiency of its data processing operations, the company recently purchased a large computer system for $2, 700.000 and spent $241, 175 to renovate a building to accommodate the new equipment. The useful life of the computer system is estimated to be eight years, at which time it could be sold for $100,000, and the equipment falls into the MACRS five-year class. The company uses the straight-line method to calculate book depreciation and pays tax at a rate of 34 percent. Suppose the firm sells the computer equipment at the end of year 4 for $500,000. What impact would this have on the taxes paid by the company?

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Category:- Financial Management
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