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This is a sample question so I have the answer but I need to know the method of getting to the answer. I am not getting to the correct number. Please give detailed very simplified explanation using a financial calculator, calculator or Excel spreadsheet so that I understand how to do this please.

Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when purchased 5 years ago and is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold for $5,000 today. The new van has an invoice price of $75,000 and will cost an additional $5,000 to modify it to carry the company's products. Cost savings from the use of the new van are expected to be $22,000 per year for 5 years at which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company's tax rate is 35%/ Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the tax effect of selling the old machine?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9880003

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