Great Western Southern purchased $525,000 of equipment four years ago.The equipment is seven-year MACRS property.The firm is selling this equipment today for $150,000.What is the aftertax cash flow from this sale if the tax rate is 27 percent? The MACRS allowance percentages are as follows, commencing with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

Question

Quizplus · Accepted Answer

To calculate the aftertax cash flow, first determine the accumulated depreciation using MACRS percentages for four years: $525,000 * (14.29% + 24.49% + 17.49% + 12.49%) = $345,172.50. The book value is $525,000 - $345,172.50 = $179,827.50. The gain on sale is $150,000 - $179,827.50 = -$29,827.50 (a loss). The tax effect is $29,827.50 * 27% = $0 (since it's a loss, no tax is paid). The aftertax cash flow is $150,000.

Great Western Southern Purchased $525,000 of Equipment Four Years Ago