Detailed Answer
Answer (D) is correct. The company will receive net cash inflows of $50 per unit ($500 selling price – $450 of variable costs), a total of $200,000 per year for 4,000 units. This amount will be subject to taxation, as will the $10,000 gain on sale of the investment,
resulting in taxable income of $210,000. No depreciation will be deducted in the tenth year because the asset was fully depreciated after 5 years. At 40%, the tax on $210,000 is $84,000. After subtracting $84,000 of tax expense from the $210,000 of inflows, the net inflows amount to $126,000.