Question

What is the expected after-tax cash flow from selling a piece of equipment if GlivCo purchases the equipment today for $730,000, the tax rate is 35 percent, the equipment is sold in 2 years for $81,000, and MACRS depreciation is used where the depreciation rates in years 1, 2, 3, and 4 are 51%, 27%, 15%, and 7%, respectively

Answer 1

Answer: $108,860

Step-by-step explanation:

Book value at time of sale:

= Cost price - Accumulated depreciation

= 730,000 - ( 730,000 * ( 51% + 27%))

= 730,000 - 569,400

= $160,600

Asset was sold at $81,000 which is a loss of:

= 81,000 - 160,600

= -$79,600

Tax on this loss:

= -79,600 * 35%

= -$27,860

After-tax cash flow:

= Sales price + tax

= 81,000 + 27,860

= $108,860