Sandy Bottom, Inc., purchased some seven-year MACRS welding equipment six years ago at a cost of $60,000.Today, the company is selling this equipment for $10,000.The tax rate is 21 percent.What is the aftertax cash flow from this sale? 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.

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Quizplus · Accepted Answer

The aftertax cash flow is calculated by finding the book value of the equipment, determining the gain or loss on the sale, and then applying the tax rate. The accumulated depreciation over six years is 86.61% (sum of MACRS percentages for six years), so the book value is $60,000 * (1 - 0.8661) = $8,034. The gain on sale is $10,000 - $8,034 = $1,966. The tax on the gain is $1,966 * 0.21 = $412.86. The aftertax cash flow is $10,000 - $412.86 = $9,587.14.