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.

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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