You are evaluating a potential purchase of several light-duty trucks. The initia

Question

You are evaluating a potential purchase of several light-duty trucks. The initial cost of the trucks will be $233,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 32,600 at the end of five years. The expected revenue associated with the trucks is $171,000 per year with annual operating costs of $79,000. The firm's marginal tax rate is 45.0%. What is the after-tax cash flow associated with the sale of the equipment?

$5,601

$17,930

$18,620

$10,241

$24,221

$5,601

$17,930

$18,620

$10,241

$24,221

Explanation / Answer

Asset costs $        233,000 Less: Depreciatioon charged $        219,020 WDV of machine at the time of sale $          13,980 Sale value of machine $          32,600 Profit on sale $          18,620 Less: Tax on sale@45% $            8,379 After tax cash flows from sale of asset $          24,221

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