The Jones Company has just completed the third year of a 5-year diminishing value recovery period for a piece of equipment it originally purchased for

$299 000.

The depreciation rate is

40%.

a. What is the book value of the equipment?

b. If Jones sells the equipment today for

$79 000

and its tax rate is

30%,

what is the after-tax cash flow from selling it?

c. Just before it is about to sell the equipment, Jones receives a new order. It can take the new order if it keeps the old equipment. Is there a cost to taking the order and if so, what is it? Explain. (Assume the new order will consume the remainder of the machine's useful life.)

Question content area bottom

Part 1

a. The book value of the equipment after the third year is

$enter your response here.

(Round to the nearest dollar.)

Part 2

b. If Jones Company sells the equipment today for

$79 000

and its tax rate is

30%,

the total after-tax proceeds from the sale will be

$enter your response here.

(Round to the nearest dollar.)

Part 3

c. Just before it is about to sell the equipment, Jones receives a new order. It can take the new order if it keeps the old equipment. Is there a cost to taking the order and if so, what is it? Explain. (Select the best choice below.)

A.

Yes, the cost of taking the order is the extra depreciation on the machine.

B.

No, Jones already owns the machine, so there is no cost to using it for the order.

C.Yes, the cost of taking the order is the lost

$64 584

in book value.

D.Yes, the cost of taking the order is the lost after-tax cash flow of

$74 675

from selling the machine.