Question

Compute the total cash flow generated if a corporation sells an old truck which was purchased...

Compute the total cash flow generated if a corporation sells an old truck which was purchased 2 years ago for $100,000. It was depreciated as a 5 year MACRS asset. (Depreciation rate is .20 and .32 for year 1 and 2, respectively.)Assume the tax rate is 40%. Calculate the cash flows from this sale for case a and b below:

a) Assume it is sold for 70,000.
b) Assume it is sold for 10,000.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a)Sold for 70,000

Purchased for $100,000

Total depreciation =$100,000*.52(.20+.32)=$52,000

Tax rat =40%

Book value =$100,000-$52,000 =$48,000

So the machine with book value of $48,000 was sold for $70,000 so it was sold on profit

After tax cash flow from sale=Salvage Value-(Salvage Value-Book Value)*tax

$70,000-($70,000-$48,000)*40%

$70,000-$8,800 =$61,200

b)Sold for $10,000

Book Value =$48,000

Sold for $10,000 means it's sold at a loss so there's a tax refund ($10,000-48,000) the loss would be of $38,000 so tax refund would be 40% of $38,000 that's$15,200

After tax cash flow =$10,000+$15,200=$25,200

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm is trying to determine the cash flow from selling an old computer system to...
A firm is trying to determine the cash flow from selling an old computer system to an interested buyer. The computer system was purchased five years ago for $428,117.00. The system was depreciated using the 7-year MACRS schedule. The firm has an offer this morning for $48,659.00. The tax rate facing the firm is 38.00%. The firm will only accept the offer if it generates a cash flow greater than $48,608.00.
Super Corporation purchased a piece of equipment for $250,000 three years ago. Today this equipment can...
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
Alpha Company purchased a non-current asset for $20,000 cash two years ago. It had a four...
Alpha Company purchased a non-current asset for $20,000 cash two years ago. It had a four year life and was going to be depreciated using the straight line method (no residual). After two years, its accumulated depreciation was $10,000. The asset was sold to Beta Company for $12,000 cash at the end of year 2. It still had two years of life remaining. Provide the general journal entry to record this sale.
Calculate the total terminal cash flow using both straight line depreciation and then using MACRS depreciation....
Calculate the total terminal cash flow using both straight line depreciation and then using MACRS depreciation. The asset has an installed cost of $500,000, a five-year life and a 3-year MACRS. The tax rate is 20%. The asset can be sold at the end of year 5 for $100,000. It requires an increase in NWC at time 0 in the amount of $40,000. Explain why they are the same or different.
1/ Assume a corporation has earnings before depreciation and taxes of $105,000, depreciation of $45,000, and...
1/ Assume a corporation has earnings before depreciation and taxes of $105,000, depreciation of $45,000, and that it has a 35 percent tax bracket. What are the after-tax cash flows for the company? $87,800 $88,600 $78,800 $84,000 2/ The Wet Corp. has an investment project that will reduce expenses by $20,000 per year for 3 years. The project's cost is $30,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's tax rate...
Portsmouth Printing Corporation recently purchased a truck for $38,000. Under MACRS, the first year’s depreciation was...
Portsmouth Printing Corporation recently purchased a truck for $38,000. Under MACRS, the first year’s depreciation was $7,600. The truck driver’s salary in the first year of operation was $52,800. The company’s tax rate is 30 percent. Calculate the after-tax cash outflow for the acquisition cost and the salary expense. Calculate the reduced cash outflow for taxes in the first year due to the depreciation.
Ripstart is replacing an old, fully depreciated stamping line with a more efficient machine that will...
Ripstart is replacing an old, fully depreciated stamping line with a more efficient machine that will cost $400,000. The line will be depreciated as a 7-year MACRS asset. With the increased production, Ripstart expects revenues to increase by $85,000 each year, and operating expenses to decrease by $10,000 per year. If Ripstart expects to sell the new machine at the end of year 5 for $95,000, compute the net cash flow in the fifth year. The MACRS depreciation rate during...
Hotshop purchased some machinery in May 2016 for $337,600. These assets are classified as five year...
Hotshop purchased some machinery in May 2016 for $337,600. These assets are classified as five year property for MACRS. The MACRS rate are .2, .32, .192, .1152, .1152, .0576 for years 1 to 6, respectively. In 2018, the company replaced this equipment with newer models at a cost of $528,000. the old equipment is being sold for $120,000. what is the after tax salvage value from this sale if the tax rate is 35 percent?
Heald and Swenson Inc. purchased a drill press for $850,000 one year and nine months ago....
Heald and Swenson Inc. purchased a drill press for $850,000 one year and nine months ago. The asset has a six-year life and has been depreciated according to the following accelerated schedule. The press was just sold for $475,000. The firm's marginal tax rate is 35%. Calculate Heald and Swenson's Taxable profit and cash flow on the sale. Assume depreciation is spread evenly within each year. Year % of Cost 1 55% 2 20% 3 10% 4 5% 5 5%...
Joe's Wilderness Outfitters is considering replacing their point of sale system. The current system was purchased...
Joe's Wilderness Outfitters is considering replacing their point of sale system. The current system was purchased 10 years ago at a total cost of $70,000. It is being depreciated straight-line to a zero value over 20 years. If Joe sells the point of sale system for $34,000 what is the after-tax cash flow to Joe's Wilderness Outfitters? Use 30% for the effective tax rate. $34,300 $33,700 $35,000 $34,800
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT