Pet Supply purchased $62,800 of fixed assets two years ago. The company no longer needs these assets so it is going to sell them today for $29,500. The assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. What is the net cash flow from this sale if the firm's tax rate is 23 percent and no bonus depreciation is taken?

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andromache andromache · Answer 1 · 2019-11-16T13:41:56+01:00

Answer:

$29,648.12

Explanation:

For computing the net cash flow from the sale, first we have to compute the book value and loss or gain on sale which is shown below:

Book value on selling date = Purchase Cost - Accumulated depreciation for two years

= $62,800 × (1 - 0.2 - 0.32)

= $62,800 × 0.48

=$30,144

Now the loss on sale would be

= Book value - sale price

= $30,144 - $29,500

=$644

So, the net cash flow would be

= Sale value of fixed assets + (loss on sale of fixed assets × firm Tax rate)

= $29500 + ($644 × 23%)

= $29,500 + $148.12

= $29,648.12