Use the table below to answer this question. Year 2 3 4 5 6 Rate 20.00% 32.00% 1

Question

Use the table below to answer this question. Year 2 3 4 5 6 Rate 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Ronnie's Custom Cars purchased some fixed assets two years ago for $45,000. 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 $24,500 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent? O $21,600.oo O $18,813.84 O $20,576.40 O $23,514.00 O $24,500.00

Explanation / Answer

Book value as on date of sales=$45000(1-0.2-0.32)=$21600

Hence gain on sales=(24500-21600)=$2900

Hence net cash flow=Sales proceeds-(Gain on sales*Tax rate)

=24500-(2900*34%)

which is equal to

=$23514.

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