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38. You are evaluating a potential investment in equipment. The equipment's basic price is $190,000, and...

38. You are evaluating a potential investment in equipment. The equipment's basic price is $190,000, and shipping costs will be $5,700. It will cost another $24,700 to modify it for special use by your firm, and an additional $11,400 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 27,800 at the end of three years. The equipment is expected to generate revenues of $181,000 per year with annual operating costs of $92,000. The firm's marginal tax rate is 40.0%. What is the value of the after-tax cash flow associated with the sale of the equipment?

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Answer #1
Asset cost $   231,800
Less: Depreciation charged $   215,574 =231800*(0.33+0.45+0.15)
Book value $      16,226
Sale value of machine $      27,800
Profit/(Loss) on sale $      11,574
Less: Tax payable @ 40% $        4,630
After tax cash flows from sale of asset $     23,170
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