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The machinery costs $200,000, and is to be depreciated using the MACRS, as a 5 year...

The machinery costs $200,000, and is to be depreciated using the MACRS, as a 5 year asset. This company uses tax rate of 34% for studies, and the machine is in use for 10 years.

If the machine is sold for $80,000 in the 4th year,

Note that there are multiple questions based on this problem.

How much is the impact of this sale on ATCF (-/+) in the 4th year from the sale? (Due to loss or gain from sale)

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Answer #1

Answer :- Impact of this sale on ATCF in 4th year will be 64550

Calculation :-

= Sale Price - ( Tax on gain/loss of sale )

Gain / loss of sale = Sale Price - Book Value

Book value = Cost price - Depreciation

Depreciation rate for macrs 5 years asset for first 4 year is 20% , 32% , 19.20% & 11.52%

So depreciation will be

1st year = 20% (i.e. 200000 * 20% = 40,000)

2nd year = 32% (i.e. 200000 * 32% = 64,000)

3rd year = 19.20% (i.e. 200000 * 19.20% = 38,400)

4th year = 11.52% (i.e. 200000 * 11.52% = 23040)

So Book value in 4th year will be

= 200000 - (40000 + 64000 + 38400 + 23040)

= 200000 - 165440

= 34560

So

Gain on sale = 80000 - 34560

= 45440

So tax on gain on sale = 45440 * 34%

= 15450

Impact of this sale in ATCF in 4th year will be

= 80000 - 15450

= 64550

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