Question

We are thinking of buying a new delivery van. It will cost 40000. We will use three years MACRS for depreciation. We think that at the end of the third year we can sell it for 12000. The tax rate is 30%. What would be the effect of selling the van on the third year cash flow?

Answer 1

Answer:

It will be a net gain for 6,325.2 after taxes

Explanation:

Bases on the MACRS at the end of the third year. we will have a book value of 7.41% Remember that under MACRS we have a half year convention so we depreciate for half a year on the assets first year. given a total year of useful life + 1

40,000 x 7.41% =  2.964‬

sales price:         12,000

we will pay taxes for the difference:

12,000 - 2,964 = 9.036‬

9036 x (1 - 30%) = 6.325,2