choose the correct answer:

1. Taxing authorities allow the fully installed cost of an asset to be written off for tax purposes. This amount is called the asset's

_ cost of capital

--- initial cash outlay

----depreclable basis

----sunk cost

2- Brian Getlaft is considering automating his pin factory with the purchase of a $475,000 machine. Shipping and Installation would cost $5,000. Getlaft has calculated that automation would result in savings of $45,000 a year due to reduced scrap and $65,000 a year due to reduced labor costs. The machine has a useful life of 4 years and falls in the 3-year property class for MACRS depreciation purposes. The estimated final salvage value of the machine is $120,000. The firm's marginal tax rate is 34%. The incremental cash outflow at time period zero is closest to

--$280,000

_$380,000

_$480,000

_$580,000

3- (See the information in Question #7 above). The "cost'' of this asset that, by law, may be written off over time "for tax purposes" is closes to

_$280,000

_$380,000

_$480,000

_$580,000

4- Ingeneral, if a depreciable asset used in business is sold for more than its depreciated book value, any amount realized in excess of book value but less than the asset's depreciable basis is

_ "capital gain" and is taxed at the corporate capital gains tax

_ "recapture of depreciation" and is taxed at the corporate capital gains rate

_ "capital gain" and is taxed at a rate equal to the firm's ordinary tax rate, or a maximum 35%

_ "recapture of depreciation" and is taxed at the firm's ordinary income tax rate

5- Under the Modified Accelerated Cost Recovery System (MACRS), an asset in the 5-year property class would typically be depreciated over years.

-four

-five

-six

-seven