Answer (C) is correct . The old asset can be sold for $60,000, producing an immediate cash inflow of that amount. This sale will result in a $20,000 loss for tax purposes ($80,000 – $60,000). At a 40% tax rate, the loss, which is deemed to affect taxes paid at the end of the first year, will provide a tax savings (cash inflow) of $8,000. Because the $8,000 savings is treated as occurring at the end of the first year, it must be discounted. This discounted (present) value is $7,040 ($8,000 × .88 PV of $1 at 14% for one period). Combining the $60,000 initial inflow with the $7,040 of tax savings results in a net-of-tax amount of $67,040.
Answer (A) is incorrect because The amount of $45,760 is the present value of the cash from the sale of the old asset minus the tax savings from the loss on disposal.
Answer (B) is incorrect because The amount of $60,000 does not include the tax effect of the loss on disposal of the old asset.
Answer (D) is incorrect because The amount of $68,000 does not discount the tax savings. Because the $8,000 savings is treated as occurring at the end of the first year, it must be discounted.
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The discounted net-of-tax amount that should be factored into Crane Company’s analysis for the disposal transaction is
