Cost recovery. Richardses' Tree Farm, Inc. purchased a new aerial tree trimmer for $82,000. It is classified in the property class category of a singlepurpose agricultural and horticultural structure. Then the company sold the tree trimmer after four years of service. If a sevenyear life and MACRS, was used for the depreciation schedule, what is the aftertax cash flow from the sale of the trimmer (use a 35% tax rate) if
a) the sales price was $30,000
b) the sales price was $25,616.80
c) the sales price was $22,000
If the sales price is a) $30,000 or b)$25,616.80 or c)$22,000 what is the aftertax cash flow?
MACRS Fixed Annual Expense Percentages by Recovery Class
Year 
3Year 
5Year 
7Year 
10Year 

1 
33.33% 
20.00% 
14.29% 
10.00% 

2 
44.45% 
32.00% 
24.49% 
18.00% 

3 
14.81% 
19.20% 
17.49% 
14.40% 

4 
7.41% 
11.52% 
12.49% 
11.52% 

5 
11.52% 
8.93% 
9.22% 

6 
5.76% 
8.93% 
7.37% 

7 
8.93% 
6.55% 

8 
4.45% 
6.55% 

9 
6.55% 

10 
6.55% 

11 
3.28% 
Book value of the trimmer after 4 years
Purchase price = 82000
Less: Depreciation
Year 1 : 14.29%*82000 = 11717.8
Year 2 : 24.49%*82000 = 20081.8
Year 3: 17.49%*82000 = 14341.8
Year 4: 12.49%*82000 = 10241.8
Book value = 25616.8
1: After tax cash flow = Sale price  (sale price – book value)*tax
= 30000 (3000025616.80)*35%
=28465.88
2: After tax cash flow = Sale price  (sale price – book value)*tax
= 25,616.80 (25,616.8025616.80)*35%
= 25,616.80
3: After tax cash flow = Sale price  (sale price – book value)*tax
= 22000 (2200025616.80)*35%
=23265.88
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