Golden overseas shipping purchased a new truck two years ago for $250,000. The c

Question

Golden overseas shipping purchased a new truck two years ago for $250,000. The company uses MACRS depreciation for accounting purposes. The truck is classified as 5-year property, which has depreciation allowances of 20%, 32%, and 19.2% for the first three years, respectively. The company is in the 35% marginal tax bracket. Today the company received an offer of $130,000 for the truck. What will be the net cash flow from the sale if the company decides to sell the truck today? Question 6 options: a) $126,500 b) $130,000 c) $115,000 d) $120,890 e) $124,250

Explanation / Answer

Book value as on date of sale today=Cost-Accumulated depreciation

=$250,000(1-0.2-0.32)

=$120,000

Hence gain on sale=(130,000-120,000)=$10000

Hence net cash flow=Sale proceeds-(gain on sale*Tax rate)

=130,000-(10000*0.35)

=$126500.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.