Phil's Dinor purchased some new equipment 2 years ago for $89,500. Today, it is selling this equipment for $67,000. What is the aftertax cash flow from this sale if the tax rate is 35 percent? The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Question

Quizplus · Accepted Answer

The after-tax cash flow is calculated as follows:Sale price: $67,000Less: Book value (original cost x MACRS allowance percentages)Year 1: $89,500 x 20.00% = $17,900Year 2: $89,500 x 32.00% = $28,640Year 3: $89,500 x 19.20% = $17,184Year 4: $89,500 x 11.52% = $10,349Year 5: $89,500 x 11.52% = $10,349Year 6: $89,500 x 5.76% = $5,170Total book value: $89,592Depreciation: $89,592 - $67,000 = $22,592Tax savings: $22,592 x 35% = $7,907After-tax cash flow: $67,000 - $22,592 + $7,907 = $58,586

Phil's Dinor Purchased Some New Equipment 2 Years Ago for $89,500