Question

a company is thinking to sell an asset since it will be replaced by a higher capacity one. the estimated sale price of the asset is $300,000 while the asset has depreciated to the salvage value of $500,000. if the company has the marginal tax rate of 35%, what is the tax implication of the sale of this asset? round to the nearest penny. if tax liabilities, type a negative sign in front. do not include a dollar sign in your answer. (i.e. if your answer is tax liabilites of $8,765,43, type -8765.43; if tax shield of $8,765.43, type 8765.43).

Answer 1

The tax implication of the sale of the asset is -$70,000.

Step-by-step explanation:

The tax implication of the sale of the asset can be calculated by considering the tax on the difference between the sale price and the book value of the asset. In this case, the book value of the asset is the salvage value of $500,000. The difference between the sale price and the book value is $300,000 - $500,000 = -$200,000. Since the difference is negative, it means the company will have a tax shield, which reduces its taxable income. To calculate the tax implication, we multiply the tax shield by the marginal tax rate of 35%:

Tax Implication = -$200,000 * 0.35 = -$70,000

Therefore, the tax implication of the sale of the asset is -$70,000.