Use the table below to answer this question. Ronnie\'s Custom Cars purchased som
ID: 2796244 • Letter: U
Question
Use the table below to answer this question.
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 flow from the salvage value if the tax rate is 34 percent?
$36,000.00
$30,476.40
$38,310.00
$33,414.00
$39,500.00
Use the table below to answer this question.
Explanation / Answer
The net cash flow can be calculated by using the below method:
Book value = Two years ago price x (1 - Year 1 MACRS - Year 2 MACRS)
Book value = 75,000 x (1 - 0.20 - 0.32) = 75,000 x 0.48
Book value = 36,000
Net cash flow = Salvage value - tax rate x ( Salvage value - Book value)
Net cash flow = 39,500 - 0.34 (39,500 - 36000)
Net cash flow = 39,500 - 1,190
Net cash flow = 38,310 (Option C)
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