A five-year MACRS asset that cost $50,000 was sold at the end of its useful life for $20,000.The book value of the asset at the time of sale was $0.The asset had no expected terminal value.The tax rate is 20%.What is the net after-tax cash inflow from the transaction?

Question

Quizplus · Accepted Answer

The net after-tax cash inflow can be calculated as follows:

Sale price - Book value = Gain on sale
$20,000 - $0 = $20,000

Tax on gain = Tax rate x Gain on sale
Tax on gain = 0.2 x $20,000 = $4,000

After-tax cash inflow = Sale price - Tax on gain
After-tax cash inflow = $20,000 - $4,000 = $16,000

Therefore, the correct answer is B.

A Five-Year MACRS Asset That Cost $50,000 Was Sold at the End