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Super Corporation purchased a piece of equipment for $250,000 three years ago. Today this equipment can...

  1. Super Corporation purchased a piece of equipment for $250,000 three years ago. Today this equipment can be sold for $75,000.. This machines fall under the five year MACRS category. Its tax rate is estimated at 40% and the cost of capital is 11.0%. Calculate after-tax cash flow associated with the sale of this equipment.

please show the steps as well. thank you

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Answer #1
Depreciation Schedule: MACRS Method
Year Rate Depreciation Accumulated Depreciation Book Value
0 $0.00 $0.00 $250,000.00
1 20.00% $50,000 $50,000 $200,000
2 32.00% $80,000 $130,000 $120,000
3 19.20% $48,000 $178,000 $72,000
4 11.52% $28,800 $206,800 $43,200
5 11.52% $28,800 $235,600 $14,400
6 5.76% $14,400 $250,000 $0
Therefore, book value at the end of 3rd year = $72,000
Book value $72,000
Sales price = 75000
Profit on sale= $3,000
Tax on profit @ 40% $1,200
After-tax cash flow $73,800
75000-1200
Ans = $73,800
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