Use the table below to answer thls question. MACRS 5-year property Year Rate 20.

Question

Use the table below to answer thls question. MACRS 5-year property Year Rate 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 3 5 6 Ronnie's Custom Cars purchased some fixed assets two years ago for $75,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he can buy some newer fixed assets which utilize the latest in technology. Ronnie has been offered $39,500 for his old assets. What is the net cash fiow from the salvage value if the tax rate is 34 percent? O $39,500.00 O $38.310.00 O $36,0000o O $33,414.00 O $30,476.40

Explanation / Answer

Calculation of net cash flow from salvage value of old asset Sale value $39,500.00 Less : Book value at the end of 2nd year $36,000.00 Profit on sale $3,500.00 Tax on Profit @ 34% $1,190.00 Net Cash flow from an asset [Sale value - Tax] $38,310.00 The answer is $38,310. Working Calculation of book value of an old asset at the end of 2nd Year Cost of an asset $75,000.00 Less : Depreciation for 1st Year [$75000 * 20%] $15,000.00 Less : Depreciation for 2nd Year [$75000 * 32%] $24,000.00 Book value of an asset at the end of 2nd Year $36,000.00

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