Question

Phil's Diner purchased some new equipment two years ago for $118,679. Today, it is selling this...

Phil's Diner purchased some new equipment two years ago for $118,679. Today, it is selling this equipment for $80,947. What is the after-tax cash flow from this sale (in $) if the tax rate is 28 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.

Homework Answers

Answer #1

Cost of a Equipment = $ 118679

Year Applicable Rate Depreciation Amount
1 20% $ 118679*20%= $ 23735.8
2 32% $ 118679*30% = $ 35603.7
$61,713.08

Value of the Equipment after allowing the Depreciation = $ 118769-$ 61713.08 = $ 57055.92

Particulars Amount
Sale value of the Equipment $80,947
less: Book Value of the Equipment $57,055.92
Gain on sale of Equipment $23,891.08

Tax on Gain realized on sale of Equipment = $ 23891.08*0.28=$ 6689.50

Particulars Amount
Sale value $80,947
less: Tax on capital gains $6,689.50
Cash flow after tax $74,257.50

Hence Cash flow after tax is $ 74257.50

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