Final answer:
The after-tax cash flow from the sale of Custom Cars' fixed assets is calculated by determining the remaining book value after depreciation, identifying any loss on the sale, and then adding the tax benefit from the loss to the sale price. The calculation results in an after-tax cash flow of $19,465.36.
Step-by-step explanation:
To determine the after-tax cash flow from the sale of Custom Cars' fixed assets, we first need to calculate the book value of the assets after two years of depreciation using the Modified Accelerated Cost Recovery System (MACRS). The total purchase value is $39,000 and the MACRS rates for the first two years are 20 percent and 32 percent respectively.
The depreciation for the first year would be $39,000 x 20% = $7,800. The remaining book value after the first year is $39,000 - $7,800 = $31,200. For the second year, the depreciation would be $31,200 x 32% = $9,984, leaving a remaining book value of $31,200 - $9,984 = $21,216.
The sale price of the assets is $19,000, which is less than the book value. This means there is a loss on the sale of $21,216 - $19,000 = $2,216. The tax benefit from this loss is $2,216 x 21% = $465.36.
The after-tax cash flow from the sale is therefore the sale price plus the tax benefit which equals $19,000 + $465.36 = $19,465.36.