Question

Great Western Southern purchased $525,000 of equipment four years ago. The equipment is seven-year MACRS property. The firm is selling this equipment today for $150,000. What is the after tax cash flow from this sale if the tax rate is 27 percent

Answer 1

Answer: $153,782.70

Explanation:

The MACRS allowance percentages are as follows, commencing with Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

In 4 years, the depreciation would be:

= Cost price * (4 year deprecation)

= 525,000 * (14.29% + 24.49% + 17.49% + 12.49%)

= $360,990

Book value :

= 525,000 - 360,990

= $164,010

Gain (loss) = Sale price - Book value

= 150,000 - 164,010

= ($14,010)

Tax payable = (14,010) * 27%

= ($3,782.70)

After-tax cash flow:

= Selling price - Taxes

= 150,000 - (-3,782.70)

= $153,782.70

Note: If there are options, beware of rounding errors and pick nearest option.