This year, Corporation EF decides to replace old, outmoded business equipment (adjusted basis $50,000) with new, improved equipment The corporation has two options Sell the old equipment for $120,000 cash and use the cash to purchase the new equipment This option has no transaction cost Exchange th...

Under both Option 1 and Option 2 Corporation EF will obtain the use of new equipment with a 5year MA ...

This year, Corporation EF decides to replace old, outmoded business equipment (adjusted basis $50,000) with new, improved

Question:

This year, EF decides to replace old, outmoded business equipment (adjusted basis $50,000) with new, improved equipment. The has two options:
• Sell the old equipment for $120,000 cash and use the cash to purchase the new equipment. This option has no transaction cost.
• Exchange the old equipment for the new like-kind equipment. This exchange has a $6,000 transaction cost that EF could deduct in the current year.
The new equipment has a MACRS recovery period of five years, and EF will use the half-year convention. EF cannot make a Section 179 election for the cost of the new equipment. Which option should EF choose? In making your computations, assume a 35 percent tax rate and a 6 percent discount rate. Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...