Author Question: An asset was purchased three years ago for 100,000 and can be sold for 40,000 today. The asset has ... (Read 106 times)

bobypop · **on:** Jul 11, 2018

An asset was purchased three years ago for 100,000 and can be sold for 40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gain.

(a) Compute recaptured depreciation and capital gain (loss), if any.
(b) Find the firm's tax liability.

Question 2

The value of a bond is the present value of the ________.

A) dividends and maturity value
B) interest and dividend payments
C) maturity value
D) interest payments and maturity value

coreycathey · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

(a) Book Value = 100,000 (1 - 0.20 - 0.32 - 0.19 ) = 29,000
Recaptured depreciation = 40,000 - 29,000 = 11,000
Capital gain = 0
11,000
(b) Tax liability = 11,000 0.40 = 4,400

Answer to Question 2

D