being depreciated straight-line to zero over a 5-year period. Today, the project ended
and the machine was sold. Which one of the following correctly defines the aftertax
salvage value of that machine? (T represents the relevant tax rate)
A. Sale price + (Sales price - Book value) × T
B. Sale price + (Sales price - Book value) × (1 - T)
C. Sale price + (Book value - Sale price) × T
D. Sale price + (Book value - Sale price) × (1 - T)
E. Sale price × (1 - T)
Val's Pizzeria is contemplating the acquisition of some new commercial ovens. The
purchase price is $38,000. The equipment will be depreciated based on MACRS
depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41
percent depreciation over years 1 to 4, respectively. The equipment will be worthless at
the end of 4 years. The equipment can be leased for $12,500 a year. The firm can
borrow money at 8 percent and has a 35 percent tax rate. What is the amount of the
depreciation tax shield in year 3?
A. $1,525.27
B. $1,624.50
C. $1,971.06
D. $2,325.00
E. $2,631.60
Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1.00 per
share. The market value is $12 per share. The balance sheet shows $42,000 in the
capital in excess of par account, $20,000 in the common stock account, and $50,500 in
the retained earnings account. The firm just announced a 5 percent (small) stock
dividend. What will the balance in the retained earnings account be after the dividend?
A. $38,500
B. $39,500
C. $50,500
D. $61,500
E. $62,500