A distribution center purchased an equipment for $100,000 and has depreciated the equipment using the MACRS depreciation schedule 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 on depreciation recapture in year 2 is equal to __________________.

Question

Quizplus · Accepted Answer

The tax on depreciation recapture in year 2 is equal to $35,404. This is because the equipment was sold for $100,000, which is more than its book value of $64,596. The difference between the sale price and the book value is $35,404, and this amount is subject to income tax.

A Distribution Center Purchased an Equipment for $100,000 and Has