Ask Question
11 May, 05:07

Mr. Hobbes Bed & Breakfast is considering the replacement of some old equipment. The new equipment will cost $86,000 including delivery and installation. The old equipment to be replaced has a book value of $60,200 and can be sold pre-tax for $61,200. If the firm's effective tax rate is 25%, compute the net investment.

+4
Answers (1)
  1. 11 May, 05:31
    0
    Net Investment = $25,550

    Explanation:

    Given:

    Sale value (old equipment) = $61,200

    Book value of old equipment = $60,200

    New equipment cost = $86,000

    Effective tax rate = 25%

    Computation

    Gain on sale = $61,200 - $60,200

    Gain on sale = $1,000

    Amount of tax on gain = $1000 * 25%

    Amount of tax on gain = $250

    Net Gain = Gain on sale - Amount of tax on gain

    Net Gain = $750

    Net Investment = Cost of new equipment - (Sale value - Net Gain)

    Net Investment = $86,200 - (61,200 - 750)

    Net Investment = $25,550
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Mr. Hobbes Bed & Breakfast is considering the replacement of some old equipment. The new equipment will cost $86,000 including delivery and ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers