You are evaluating a potential purchase of several lightduty trucks. The initial cost of the trucks will be $145,000. The trucks fall in the MACRS 5year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 14,500 at the end of five years. The expected revenue associated with the trucks is $111,000 per year with annual operating costs of $57,000. The firm's marginal tax rate is 40.0%. What is the aftertax cash flow associated with the sale of the equipment?
Question 33 options:
$8,700 

$12,180 

$5,800 

$3,480 

$6,380 
The after tax cash flow is computed as shown below:
= Sales value  tax expenses
Book value at the end of year 5 is computed as follows:
= Purchase price  Depreciation (20% + 32% + 19% + 12% + 11%)
= $ 145,000  94%
= $ 8,700
Profit on sale is computed as follows:
= Sales value  book value
= $ 14,500  $ 8,700
= $ 5,800
Tax on profit is computed as follows:
= Profit x tax rate
= $ 5,800 x 40%
= $ 2,320
So, the after tax sales value will be computed as follows:
= $ 14,500  $ 2,320
= $ 12,180
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