has a chance to sell its 3-year-old roaster for $34,100. The existing roaster or

Question

has a chance to sell its 3-year-old roaster for $34,100. The existing roaster originaly rate of 40% on ordinary income and capital gains. cost $60,700 and was being c. Caloulate the change in net working capital using the following igures using MACRS and a 7-year reoovery period (see the table). DuPree pays taxes at a roaster will be $128,000 The fim Anticipated Changes in Current Assets and Inventory Accounts receivable 50.300 +41.000 70,700 First Four Property Classes Recovery year (Round to the nearest dolar.) Percentage by recovery year 3 years 12% 100% retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual

Explanation / Answer

a) Book value = $60,700 x (1-14%-25%-18%) $26,101.00 b) After Tax proceeds = SV + (BV - SV) x Tax rate After tax proceeds = $34100 + ($26,101 -34100)*40% $30,900 C) Current Assets Inventory 50300 Accounts receivable 70700 Total Current Assets 121000 Less: Current liabilities Accruals -20900 Accounts payable 41000 Total Current Liabilities 20100 Net working Capital (CA - CL) $100,900.00 d) Initial investment = - 128,000 - $100,900 -$228,900.00

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