Use the table below to answer this question. MACRS 5-year property Year Rate 1 2

Question

Use the table below to answer this question. MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% Ronnie's Custom Cars purchased some fixed assets two years ago for $90,000. 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 $47,000 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent?

Explanation / Answer

Net cash flow = selling price*(1-tax rate)+remaining book value*tax rate

=47000*(1-0.34)+90000*(0.192+0.1152+0.1152+0.0576)*0.34

=45708

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