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Reversing Rapids Co. purchases an asset for $198,498. This asset qualifies as a five-year recovery asset...

Reversing Rapids Co. purchases an asset for $198,498. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $11,031.

Calculate After-Tax Cash Flow at disposal. Round the answer to two decimals.

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Answer #1
Depreciation Schedule
Year Opening Balance Depreciation Base Depreciation Rate Depreciation Closing Balance
A B C D E = C*D F = B-E
1 198498 198498 20% 39699.6 158798.4
2 158798.4 198498 32% 63519.36 95279.04
3 95279.04 198498 19.20% 38111.616 57167.424
4 57167.42 198498 11.52% 22866.9696 34300.4544

Sale Value at the end of year 4= $11,031

Book value at the end of year 4 = $34,300.45

Tax rate = 30%

Tax credit on loss of sale = (Book value - Sale value) * tax rate

= ($34,300.45 - $11,031) * 30%

= $23,269.45 * 30%

= $6,980.84

After tax cash flow at disposal = Sale value + Tax credit on loss

= $11,031 + $6,980.84

= $18,011.84

Therefore, after tax cash flow at disposal is $18,011.84

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