Problem:
A corporation has decided to replace an existing asset with a newer model. The new asset will cost $70,000. The original asset, when purchased cost $10,000, was being depreciated under a straight line methodology, using a five-year recovery period, and has been depreciated for four full years. The existing asset can be sold for $8,000.
Required:
Question: If the assumed tax rate is 40 percent on ordinary income and capital gains, what is the initial investment?
Note: Please explain comprehensively and give step by step solution.