Question

Active Alarm is replacing its old device manufacturing machine with a new one. The old machine is being sold for $200,000 and it has a book value of $50,000. The tax rate for Active Alarm is 40%. How much cash will Active Alarm net from the sale of the old machine?

Answer 1

Answer:

The sale of the machine will generate an after-tax income of 90,000

Explanation:

The company will be paying a tax income for the diference between the sales price and the book value at a rate of 40%

200,000 - 50,000 = 150,000 x 40% = 60,000 tax income

150,000 gross profit - 60,000 tax income = 90,000 net gain from sale of machine