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 effect from the sale of the asset?

Question

Quizplus · Accepted Answer

Since the book value of the asset at the time of sale was $0 and it was sold for $20,000, the entire sale price is considered a gain. The tax on the gain is 20% of $20,000, which is $4,000. Therefore, the net after-tax cash inflow is the sale price minus the tax, which is $20,000 - $4,000 = $16,000.

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