Question

You are evaluating a potential purchase of several light-duty trucks. The initial cost of the trucks will be $194,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 29,100 at the end of five years. The expected revenue associated with the trucks is $155,000 per year with annual operating costs of $81,000. The firm's marginal tax rate is 25.0%. What is the after-tax cash flow associated with the sale of the equipment

Answer 1

The after-tax cash flow associated with the sale of equipment is $299,325.

What is an initial cost?

• The initial cost is the typical cost of buying or producing the goods you have on hand.

What is an operating cost?

• Operating costs, often known as operating costs, are the costs associated with running a company, or with running a machine, part, piece of equipment, or facility.
• They represent the cost of the resources an organization uses just to stay in business.

What is cash flow?

• The actual or fictitious movement of money is known as cash flow.
• In finance and accounting, cash flow describes the capital inflows and outflows of particular economic units with the aim of achieving a particular goal within a predetermined window of time.
• Making an accurate prediction of future cash flows is required in accounting in addition to measuring current cash flows.

Solution -

Revenue of 5 years $= 155000 * 5 = 775000$.

Operating cost of 5 years $= 81000 * 5 = 405000$.

Sale of equipment $= 29100$.

Net profit = $775000+29100 - 405000=399100$.

Tax to be deducted at 25% $= 99775$.

Cash flow after tax $399100-99775=299325$.

Therefore, the after-tax cash flow associated with the sale of equipment is $299,325.

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