The Jones Company has just completed the third year of a five-year MACRS recover

Question

The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment i originalily purchased for $303,00 a. What is the book value of the equipment? b. If Jones sells the equipment today for S 185,000 and its tax rate is 35%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1 a. What is the book value of the equipment? The book value of the equipment after the third year is $(Round to the nearest dollar.) b. If Jones sells the equipment today for S 185,000 and its tax rate is 35%, what is the after-tax cash flow from selling it? The total after-tax proceeds from the sale will be s(Round to the nearest dolilar.)

Explanation / Answer

1) Book Value of Equipment $       87,264 2) After tax proceeds from the sale $   1,50,792 Working: Depreciation Schedule: Year Cost Depreciation rate Depreciation Expense Accumulated Depreciation Ending Book Value 1 $       3,03,000 20.00% $       60,600 $     60,600 $ 2,42,400 2 $       3,03,000 32.00% $       96,960 $ 1,57,560 $ 1,45,440 3 $       3,03,000 19.20% $       58,176 $ 2,15,736 $     87,264 Profit on sale = Sale Price - Book Value = $        1,85,000 - $       87,264 = $            97,736 Tax on profit on sale = Profit on sales x tax Rate = $            97,736 x 35% = $            34,208 After tax cash flow from selling equipment = Sale Proceeds - Tax on selling equipment = $   1,85,000 - $ 34,208 = $   1,50,792

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