Question

In 2015, a delivery company purchased a fleet of local delivery trucks for $175,000. These are 5 year assets. This company pays federal tax at a rate of 23% per year.

1. Develop a MACRS depreciation table for this asset, and compute the post-tax income of this company using their gross sales income given below.
2. Is this a good investment if MARR = 25% per year?
3. The company sold the trucks in September 2020 for $18,000. What are the tax implications?

Year	Gross Annual Income	di	Di	Taxable Income	Tax paid	Post-Tax income
2015	$250,000
2016	$350,000
2017	$30,000
2018	$150,000
2019	$165,000
2020	$65,000

Answer 1

Solution
	Year	Gross Annual Income	di	Di	Taxable Income	Tax paid	Post-Tax income	Depreciation	Cash flow	Salvage value of Truck	PV @ 25%	Present value
	2015	2,50,000	20%	31400	2,18,600	50278	1,68,322	31400	1,99,722	0	0.8000	159778
	2016	3,50,000	32%	50240	2,99,760	68944.8	2,30,815	50240	2,81,055	0	0.6400	179875
	2017	30,000	19.20%	30144	-144	0	-144	30144	30,000	0	0.5120	15360
	2018	1,50,000	11.52%	18086	1,31,914	30340.128	1,01,573	18086	1,19,660	0	0.4096	49013
	2019	1,65,000	11.52%	18086	1,46,914	33790.128	1,13,123	18086	1,31,210	0	0.3277	42995
	2020	65,000	5.76%	9043	55,957	12870.064	43,087	9043	52,130	18,000	0.2621	18384
	Total	465405
	NPV = 465405-175000 =290405
	Hence, since NPV is positive ( $290405) it is am good investment