Question

Pet Supply purchased some fixed assets two years ago at a cost of $43,800. It no longer needs these assets so it is going to sell them today for $32,500. The assets are classified as five-year property for MACRS. The MACRS rates are 20%, 32% 19.2%, 11.52%, 11.52%, 5.76%, for years 1 to 6, respectively. What is the net cash flow (A-T Salvage Value) from this sale if the firm's tax rate is 35 percent

Answer 1

The correct solution is "28483".

Step-by-step explanation:

According to the question,

Given:

Sales price,

= 32500

MARCS rates,

=
`43800* 0.2`

=
`8760`

Or,

=
`43800* 0.32`

=
`14016`

Now,

The total depreciation will be:

=
`8760+14016`

=
`22776`

The company's book value will be:

=
`Original \ value-Depreciation`

=
`43800-22776`

=
`21024`

Gain will be:

=
`32500-21024`

=
`11476`

Tax,

=
`35* 11476`

=
`4016`

hence,

The net cashflows will be:

=
`Sale \ price-Tax`

=
`32500-4016`

=
`28483`

Answer 2

$28,483.4

Step-by-step explanation:

The computation of the net cash flow is shown below;

Asset cost $43,800

MACRS Rate 0.2 0.32

8760 14016

So total depreciation is

= $8,760 + $14,016

= $22,776

Now

Book Value of the company is

= oriignal value - depreication

= $43,800 - $22,776

= $21,024

And,

Sale price = 32500

So,

Gain is

= $32,500 - $21,024

= $11,476

So,

Tax = 0.35% of 11476

= $4,016

And, finally

Net cashflows is

= Sale price - tax

= $28,483.4