Detailed Answer
Answer (C) is correct. The tax basis of $75,000 and the $40,000 cost to remove can be written off. However, the $10,000 scrap value is a cash inflow. Thus, the taxable loss is $105,000 ($75,000 loss on disposal + $40,000 expense to remove $10,000 of inflows). At a 40% tax rate, the $105,000 loss will produce a tax savings (inflow) of $42,000. The final cash flows will consist of an outflow of $40,000 (cost to remove) and inflows of $10,000 (scrap) and $42,000 (tax savings), or a net inflow of $12,000.
