Xenon Corporation can sell an auto used in its business for $4,000 and purchase a new auto for $20,000. Alternatively, it can trade in the auto on a new one from a different dealer. This dealer will allow $4,000 on the trade-in of the old car but requires an additional $17,000 payment. The old auto has a basis of

$500 and Xenon Corporation is in the 25 percent marginal tax bracket. It generally uses its cars for only three years.Which alternative should Xenon choose?

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