Question

A firm has a general-purpose machine, which has a book value of $400,000 and can be sold for $600,000 in the market. If the tax rate is 30%, what is the opportunity cost of using the machine in a project considering the tax issues

Answer 1

$540,000

Step-by-step explanation:

Calculation for the opportunity cost of using the machine in a project considering the tax issues

First step is to calculate the Tax on sale

Using this formula

Tax on sale = (Sale Value - Book Value) * Tax rate

Let plug in the formula

Tax on sale= ($600,000 - $400,000) * 30%

Tax on sale= $60,000

Now let calculate After tax sale value using this formula

After tax sale value = Sale Value - Tax on sale

Let plug in the formula

After tax sale value= $600,000 - $60,000

After tax sale value= $540,000

Therefore the Opportunity cost of using the machine in project considering the tax issues is $540,000