Metal Makers, Inc. purchased some welding equipment 6 years ago at a cost of $579,000. Today, the company is selling this equipment for $110,000. The tax rate is 34 percent. What is the aftertax cash flow from this sale? The MACRS allowance percentages are as follows, commencing with year one: 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 after depreciation, determining the gain or loss on the sale, and then applying the tax rate to the gain or loss. The accumulated depreciation over 6 years is 86.61% (sum of MACRS percentages for 6 years). The book value is $579,000 * (1 - 0.8661) = $77,454. The gain on sale is $110,000 - $77,454 = $32,546. The tax on the gain is $32,546 * 0.34 = $11,066. The aftertax cash flow is $110,000 - $11,066 = $98,934, which is closest to $98,960.