Use the Following Information for Questions 9-A and 9-B: Dowen

Essay

Use the following information for questions 9-A and 9-B: Dowen Corp. purchased a piece of equipment two years ago for $40,000. It has been depreciated straight line over a five- year life with an expected salvage value of $10,000. Dowen is considering replacing this equipment with a machine that would cost $80,000 and would be depreciated on a straight line basis over 10 years with a projected salvage value of zero. The old piece of equipment can be sold today for $22,000. The applicable tax rate is 40%.
A. What is the initial outlay for this project?
a. $55,600
b. $58,000
c. $60,400
d. $72,000
e. $80,000
B. What is the change in depreciation in Year 3 of the new machine's life?
a. $2,000 increase
b. $2,000 decrease
c. $6,000 increase
d. $8,000 increase
e. $8,000 decrease