Question

Phil's Dinor purchased some new equipment two years ago for $32,600. Today, it is selling this equipment for $22,000. What is the aftertax cash flow from this sale if the tax rate is 35percent? The applicable MACRS allowance percentages are as follows, commencing with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
(A) $18,846.67
(B) $25,153.33
(C) $19,776.80
(D) $20,408.20
(E) $24,223.20

Answer 1

Answer:

(C) $19,776.80

Explanation:

The company will pay taxes for the difference between book value and sale value at disposal:

book value after 2 years:

It will be acquisition less accumulated depreciation, which is the sum of the MACRS depreciation rate for this two years

32,600 (1 - 0.20 - 0.32) = 32,600 x 0.48 = 15,648

sales price: 22,000

taxes: (22,000 - 15,648) x .35

          6,352 x 0.35 = 2,223.2

after tax cash flow: 22,000 - 2,223.2 = 19,776.8