Question

Anthony Inc. purchases a machine for $15,000. This machine qualifies as a 5-year recovery asset under MACRS with the fixed percentages as follows for years 1,2,3, and 4 respectively: 20%, 32%, 19.2% and 11.52%. The tax rate is 33%. If the machine is sold at the end of 4 years for $4,000, what is the cash flow from disposal?

Answer 1

The correct answer is $3,535.36

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

First we calculate the book value,

So, Book value = $15,000 × ( 1 - 20% - 32% - 19.2% - 11.52%)

= $2,592

So, we can calculate the Cash flow from disposal by using following formula:

Cash flow from disposal = Sale proceeds - ( Gain on sales × Tax rate)

Where, Gain on sales = ($4,000 - $2,592 ) = $1,408

By putting the value, we get

= $4,000 - ( $1,408 × 33% )

=$3,535.36