Question

a distribution center purchased an equipment for $100,000 and has depreciated the equipment using the macrs depreciation schedule with as a 7-year property. the operating income in year 2 was $200,000 and the expenses were $87,000. if the company is in the 40% income tax bracket, determine the after-tax cash flow in year 2 the tax in year 2 is equal to .

Answer 1

The after-tax cash flow in year 2 for the distribution center is $73,516.

Step-by-step explanation:

To determine the after-tax cash flow in year 2, we first need to calculate the depreciation expense for year 2 using the MACRS depreciation schedule. In this case, since the equipment is a 7-year property, the depreciation expense for year 2 would be 14.29% (100% divided by 7) of the initial cost of $100,000, which is $14,290.

The taxable income for year 2 would be the operating income of $200,000 minus the expenses of $87,000 and the depreciation expense of $14,290, which is $98,710.

The tax liability for year 2 can be calculated by multiplying the taxable income by the income tax rate of 40%, which is $39,484.

The after-tax cash flow in year 2 would be the operating income of $200,000 minus the expenses of $87,000 minus the tax liability of $39,484, which is $73,516.