Question

Pet Supply purchased some fixed assets two years ago at a cost of $43,800. It no longer needs these assets so it is going to sell them today for $32,500. The assets are classified as five-year property for MACRS. The MACRS rates are 20%, 32% 19.2%, 11.52%, 11.52%, 5.76%, for years 1 to 6, respectively. What is the net cash flow (A-T Salvage Value) from this sale if the firm's tax rate is 35 percent

Answer 1

Answer:

$28,483.4

Explanation:

The computation of the net cash flow is shown below;

Asset cost       $43,800

MACRS Rate 0.2 0.32

                     8760 14016

So total depreciation is

= $8,760 + $14,016

= $22,776

Now  

Book Value of the company is

= oriignal value - depreication

= $43,800 - $22,776

= $21,024

And,  

Sale price = 32500

So,  

Gain is

= $32,500 - $21,024

= $11,476

So,  

Tax = 0.35% of 11476

= $4,016

And, finally  

Net cashflows is

= Sale price - tax

= $28,483.4

Answer 2

Answer:

The correct solution is "28483".

Explanation:

According to the question,

Given:

Sales price,

= 32500

MARCS rates,

= $43800\times 0.2$

= $8760$

Or,

= $43800\times 0.32$

= $14016$

Now,

The total depreciation will be:

= $8760+14016$

= $22776$

The company's book value will be:

= $Original \ value-Depreciation$

= $43800-22776$

= $21024$

Gain will be:

= $32500-21024$

= $11476$

Tax,

= $35\times 11476$

= $4016$

hence,

The net cashflows will be:

= $Sale \ price-Tax$

= $32500-4016$

= $28483$