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A firm has just purchased a new piece of equipment for $50,000.  The equipment will cost an...

A firm has just purchased a new piece of equipment for $50,000.  The equipment will cost an additional $2,000 to be delivered and installed.  Based on IRS guidelines, the equipment will be depreciated using a 3-year MACRS schedule.  The firm plans on using the equipment for three years and then selling the equipment for $15,000.  The tax rate facing the firm is 30%.  What will be the cash flow from selling the equipment in three years?

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Answer #1

cost of equipment=50000+2000=$52000

depreciation schedule

year adjusted basis rate % depreciation cummulative closing book value
1 52000 33.33 17333 17333 34667
2 34667 44.44 23111 40444 11556
3 11556 14.81 7704 48148 3852

BOOK VALUE AS ON THIRD YEAR $3852

PARTICULARS AMOUNT
A SALE VALUE 15000
B LESS BOOK VAUE 3852
C GAIN (A-C) 11148
D TAX THERE ON @ 30% 3344
E NET CASH FLOWS (A-E) 11656

CASH FLOW FROM SELLING EQUIPMENT $ 11,656

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