Reversing Rapids Co. purchases an asset for $136881. This asset qualifies as a f

Question

Reversing Rapids Co. purchases an asset for $136881. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20%, 32%, 19.2%, and 11.52% respectively. Reversing Rapids Has a tax rate of 30%. The asset is sold at the end of four years for $10156.

Calculate tax credit on disposal.

Reversing Rapids Co. Purchases an asset for $175995. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20%, 32%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $10322.

Calculate after-tax cash flow at disposal.

Explanation / Answer

Tax credit on disposal = remaining book value * tax rate = 136881* (1 - .2 - .32 - .192 - .1152) * 0.3 = $7095.91

After tax cash at disposal = selling price - (selling price - remaining book value) * ( tax rate)

= 10322 - (10322 - 175995*(1 - .2 - .32 - .192 - .1152))* (.3) = $16348.98

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