Question

# Phil's Diner purchased some new equipment two years ago for \$102,274. Today, it is selling this...

Phil's Diner purchased some new equipment two years ago for \$102,274. Today, it is selling this equipment for \$81,604. What is the after-tax cash flow from this sale (in \$) if the tax rate is 35 percent? The equipment falls in 5-year MACRS class. The MACRS allowance percentages are as follows, commencing with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Solution:-

To calculate after-tax Cash flow from this sale-

Book Value at of 2 year = Initial Cost - (Sum of % of depreciation Rate)

Book Value at of 2 year = \$1,02,274 - (20% + 32%)

Book Value at of 2 year = \$1,02,274 - 52%

Book Value at of 2 year = \$49,091.52

Sales Value = \$81,604

Tax on Gain on sale = 0.35 * (\$81,604 - \$49,091.52)

Tax on Gain on sale = \$11,379.37

After Tax Cash Flow from this Sales is \$81,604 - \$11,379.37 = \$70,224.63

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