Disquotek, Inc What Is the Relevant After-Tax Cash Flow Associated with Disposing

Disquotek, Inc., is a software manufacturer. Managers are considering a new equipment proposal. The income tax rate is 40%, and the discount rate is 10%. The following data are available: $\begin{array}{lrc}& \underline{\text { Old Equipment}}& \underline{\text { New Equipment}}\\ \text { Purchase cost } & \$ 12,000 & \$ 36,000 \\\text { Annual amortization } & 1,500 & 4,500 \\\text { Remaining useful life (years) } & 8 & 8 \\\text { Current selling price } & 14,400 & \text { not applicable } \\\text { Selling price in 8 years } & 1,000 & 2,000 \\\text { Annual operating costs } & 14,000 & 8,000\end{array}$

What is the relevant after-tax cash flow associated with disposing of the new equipment at its salvage value in 8 years?

A) $2,000
B) $1,200
C) $0
D) $800

Correct Answer:

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