Question

Eastern Inc. purchases a machine for​ $15,000. This machine qualifies as a fiveminusyear recovery asset under MACRS with the fixed depreciation percentages as​ follows: year 1​ = 20.00%; year 2​ = 32.00%; year 3​ = 19.20%; year 4​ = 11.52%. Eastern has a tax rate of​ 20%. If the machine is sold at the end of four years for​ $4,000, what is the cash flow from​ disposal?

Answer 1

Answer:

The answer is given below;

Explanation:

Cost of Machine              $15,000

Depreciation year-1   ($15,000*20%) ($3,000)

Depreciation year-2  (15,000*32%) ($4,800)  

Depreciation year-3  (15,000*19.2%) ($2,880)

Depreciation year 4   (15,000*.1152%) ($1,728)

Written down value                             $2,592

Sale proceeds from disposal              $4,000

Gain on Sale ($4,000-2,592)             $1,408  

Tax on gain 1,408*20%                      ($282)

Net of Tax gain on sale                      $1,126