Question

Phil's Dinor purchased some new equipment two years ago for $32,600. Today, it is selling this equipment for $22,000. What is the aftertax cash flow from this sale if the tax rate is 35percent? The applicable MACRS allowance percentages are as follows, commencing with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

a. $18,846.67
b. $25,153.33
c. $19,776.80
d. $20,408.20
e. $24,223.20

Answer 1

The aftertax cash flow from the sale of the equipment is $20,509.04.

Step-by-step explanation:

To calculate the aftertax cash flow from the sale of the equipment, we first need to determine the book value of the equipment. Using the MACRS depreciation method, we can calculate the book value of the equipment after two years:

1. Year 1: $32,600 - ($32,600 * 20%) = $26,080
2. Year 2: $26,080 - ($26,080 * 32%) = $17,734.4

The book value after two years is $17,734.4. The sale price is $22,000. The taxable gain is the difference between the sale price and the book value, which is $22,000 - $17,734.4 = $4,265.6. Applying the tax rate of 35%, the tax on the gain is $4,265.6 * 35% = $1,490.96.

The aftertax cash flow from the sale is the sale price minus the tax on the gain, which is $22,000 - $1,490.96 = $20,509.04.