Question

A corporation is selling an existing asset for $23,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period, and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ______.
Select one:
a. $9,720 tax liability
b. $8,520 tax liability
c. $7,720 tax liability
d. $9,320 tax liability

The portion of an asset's risk that is attributable to firm-specific, random causes is called ______.
Select one:
a. stock risk
b. market risk
c. nondiversifiable risk
d. diversifiable risk

Please Solve As soon as
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Thank's
Abdul-Rahim Taysir

Answer 1

Solution

1)

Option B

Now gain on sale = Sale value - Remaining balance on Year 5

= 23000-1700 = 21300

Tax liability = 40% of 21300 = 8520

2)

Firm specific risk caused due to random occurences that cannot be predicted before hand is called unsystematic risk/diversifiabe. This risk can be mitigated by diversifying the portfolio etc

Option D