Problem 1 An equipment purchased at a cost of $200 de ,000 by Mega Tech Engineer

Question

Problem 1 An equipment purchased at a cost of $200 de ,000 by Mega Tech Engineering Systems was preciated using the MACRS method. The system was sold after 4 years for $150,000. Determine the recapture on this equipment. Problem An equipment purchased at a cost $80,000 by a local company is being depreciated using MACRS method as a 5-year property. At the end of four years, the management decided to sell the equipment for a modest price of $20,000. The company is in the 34% tax bracket Compute the tax consequence on the sale of this equipment. Problem 3 A production equipment at a cost of $500,000 has been purchased by a contract manufacturing company. to meet the specific needs of customer that had awarded a 4-year contract with the possibility of extending the contract for another 4 years. The company plans to use the MACRS depreciation method for this equipment as a 7-year property for tax purposes. The income tax rate for the company is 39%, and it expects to have an after-tax rate of return of 12% for all its investments The equipment generated an annual income of $100,000 for the first four years. The customer decided not to renew the contract after 4 years. Consequently, the company decided to sell the equipment for $180,000 at the end of 4 years. Determine if the company obtained the expected after-tax rate of return on this investment.

Explanation / Answer

1 Cost of depreciable asset $200,000 MACRS depreciation recovery period 5 years A B C=B*200,000 Year Depreciation Depreciation Rate Amount 1 20% $        40,000 2 32% $        64,000 3 19.20% $        38,400 4 11.52% $        23,040 5 11.52% $        23,040 6 5.76% $        11,520 Salvage value after 4 years $150,000 Accumulated depreciation in 4 years $165,440 (40000+64000+38400+23040) Book value after 4 years $34,560 (200000-165440) Recapture $115,440 (150000-34560)

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.