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the olson company plans to replace an old machine with a new one costing $85,000. The old machine originally cost $55,000 and has six years of its...

the olson company plans to replace an old machine with a new one costing $85,000. The old machine originally cost $55,000 and has six years of its expected 11 years life remaining. It has been depreciated straight-line assuming zero salvage value and has a current market value of $24,000. Olson effective tax rate is 36%. calculate the initial outlay associated with selling the old machine and acquiring the new one.

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Olson.xlsx

Cost of old machine
Life in years
Years remaining
Current value
Accumulated depreciation
Book value
Purchase of new machine
Initial outlay $55,000
11
6
$24,000
25000
$30,000
$85,000
$61,000

1 comment
  • Since the market value is less than the book value, there will be no effect of tax on the on the sale of the old asset
    • ProfMT
    • Jul 19, 2016 at 9:11pm

Selling of old machine = $24000... View the full answer

Cost of new machine 85000 Less: Cost of old machine 26160 Initial investment or Initial... View the full answer

Cost of new machine 85000 Less: Cost of old machine 21840 Initial investment 63160... View the full answer

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