Use the table below to answer this question. Ronnie\'s Custom Cars purchased som
ID: 2645736 • Letter: U
Question
Use the table below to answer this question.
Ronnie's Custom Cars purchased some fixed assets two years ago for $95,000. 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 $49,500 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent?
MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76%Explanation / Answer
Book value after two years = 95000 * (1 - 20% - 32%)
= 45600
Profit on sale = 49500 - 45600 = 3900
Tax on profit = 3900 * .34 = 1326
Net cash flow from the salvage value = 49500 - 1326
= 48174
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