Consider a machine that costs $115,000 now and has a useful life of seven years.This machine will require a major overhaul at the end of the fourth year that will cost X dollars.If the tax rate is 40%,and if the after-tax cash outflow for this overhaul is $3,600,what is the amount of X in dollars?
A) $1,440.
B) $2,160.
C) $6,000.
D) $9,000.

Question

Quizplus · Accepted Answer

To calculate the cost of the overhaul, we need to determine the after-tax cost of the overhaul. 
After-tax cost of overhaul = before-tax cost of overhaul - tax savings 
Tax savings = tax rate * before-tax cost of overhaul 
Tax savings = 0.4 * X

Given that after-tax cash outflow for this overhaul is $3,600, we can write:

Before-tax cost of overhaul - tax savings = $3,600 
X - 0.4X = $3,600 
0.6X = $3,600 
X = $6,000

Therefore, the cost of the overhaul is $6,000. Option C is the correct answer.

Consider a Machine That Costs $115,000 Now and Has a Useful