Question

Ahmed's corporation purchased a set of rollers used in the steel making conveyor system at $300,000 in year 0. The cost basis also includes the installing and laboring of this system which costs $8,000 and $6000, respectively. The conveyor system was classified as a seven-year MACRS class property, and the marginal tax rate is 34.29%. If his corporation is considering selling the system for $100,000 at the end of year 4, the net proceeds from the sale is computed as: (choose the closest answer)

a) $93,930 b) $106,070 c) $108,787 d) $110,784 e) $98,780

Answer 1

7 Year MACRS Depreciation
14.29%
24.49%
17.49%
12.49%
8.93%
8.92%
8.93%
4.46%

Asset Value = 300000 + 8000 + 6000 = 314000

	Beginning balance	Depreciation	Closing balance
1	314000	44871	269129
2	269129	76899	192231
3	192231	54919	137312
4	137312	39219	98094
5	98094	28040	70053
6	70053	28009	42045
7	42045	28040	14004
8	14004	14004	0

At the end of 4th year,

Carrying value of asset is 98094

Corporation is considering selling the same at 100000

Gain on sale = 100000 - 98094 = 1906

Taxes on gains = 1906*34.29% = 654

Net proceeds after tax = 100000-654 = 99346

(All number are rounded off)

Closest option is E