Question

The equipment would cost $162,000 and would be classified as five-year property for MACRS. The equipment will be sold for $20,000 at the end of the project. Taking on the project would require the company add $10,000 in net working capital. Variable costs equal 67 percent of sales, fixed costs are $5,600, and the tax rate is 21 percent. Willie's paid a consultant $500 to determine the effect on sales over the five years if the equipment is purchased. The consultants esimates of yearly sales increases and MACRS depreciation allowance percentages are provided in table below.

Year | 1 | 2 | 3 | 4 | 5 | 6 |

Sales ($) | 42,000 | 44,500 | 45,600 | 48,900 | 52,000 | |

MACRS rates | 20.00 | 32.00 | 19.20 | 11.52 | 11.52 | 5.76 |

What is the net cash flow from the sale of the asset that would be included in the final year cash flow estimate?

Answer #1

A company is considering the purchase
of a $200,000 piece of equipment. The equipment is classified as
5-year MACRS property. The company expects to sell the equipment
after five years at a price of $30,000. The relevant tax rate is
20%. What is the after-tax cash flow from this sale?
MACRS 5-year property
Year Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

An asset used in a four-year project falls in the five-year
MACRS class for tax purposes. The asset has an acquisiton cost of
$8,300,000 and will be sold for $1,700,000 at the end of the
project. If the tax rate is 35%, what is the after-tax salvage
value?
Use the following table below:
Year ACRS %
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

A company is considering a new 6-year project that will have
annual sales of $207,000 and costs of $128,000. The project will
require fixed assets of $247,000, which will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 34 percent. What is the operating cash flow for Year 2?

King Nothing is evaluating a new 6-year project that will have
annual sales of $425,000 and costs of $293,000. The project will
require fixed assets of $525,000, which will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 35 percent. What is the operating cash flow for Year 3?

Phil's Diner purchased some new equipment two years ago for
$118,679. Today, it is selling this equipment for $80,947. What is
the after-tax cash flow from this sale (in $) if the tax rate is 28
percent? The equipment falls in 5-year MACRS class. The MACRS
allowance percentages are as follows, commencing with year 1:
20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Phil's Diner purchased some new equipment two years ago for
$102,274. Today, it is selling this equipment for $81,604. What is
the after-tax cash flow from this sale (in $) if the tax rate is 35
percent? The equipment falls in 5-year MACRS class. The MACRS
allowance percentages are as follows, commencing with year 1:
20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

A company is considering a new 6-year project that will have
annual sales of $198,000 and costs of $122,000. The project will
require fixed assets of $241,000, which will be depreciated on a
5-year MACRS schedule. The annual depreciation percentages are
20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 34 percent. What is the operating cash flow for Year 2?
Multiple Choice
$65,892
$63,817
$76,381
$52,061
$59,599

A company is evaluating a new 4-year project. The equipment
necessary for the project will cost $3,800,000 and can be sold for
$745,000 at the end of the project. The asset is in the 5-year
MACRS class. The depreciation percentage each year is 20.00
percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52
percent, respectively. The company's tax rate is 34 percent. What
is the aftertax salvage value of the equipment?

Brummitt Corp., is evaluating a new 4-year project. The
equipment necessary for the project will cost $2,800,000 and can be
sold for $313,000 at the end of the project. The asset is in the
5-year MACRS class. The depreciation percentage each year is 20.00
percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52
percent, respectively. The company's tax rate is 35 percent. What
is the aftertax salvage value of the equipment?

Manzana Inc. is buying a piece of equipment. The equipment costs
$2,000,000. The equipment is considered for tax purposes as a
5-year MACRS class. If the equipment is sold at the end of 6 years
for $300,000, what is the after-tax cash flow from the sale of this
asset (termination value of the equipment)? The marginal tax rate
is 20 percent.
The annual expense percentage for a 5-year MACRS property from
year 1 to 6 respectively are: 20.00%; 32.00%; 19.20%;...

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