Question

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.

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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