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Genetic Insights Co. purchases an asset for $10,522. This asset qualifies as a seven-year recovery asset...

Genetic Insights Co. purchases an asset for $10,522. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. Genetic Insights has a tax rate of 30%. The asset is sold at the end of six years for $3,906

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Expert Solution

Year

MACRS %

Depreciation

Accumulated Depreciation

Book Value

1

0.1429

1503.5938

1503.59

9018.4062

2

0.2449

2576.8378

4080.43

6441.5684

3

0.1749

1840.2978

5920.73

4601.2706

4

0.1249

1314.1978

7234.93

3287.0728

5

0.0893

939.6146

8174.54

2347.4582

6

0.0892

938.5624

9113.1

1408.8958

At the end of 6th year book value of asset is 1408.9

The asset is sold for 3906

Because sale price is more than the book value of asset the gain on sale of asset will be taxed

Gain = 3906 – 1409

          = 2497

Tax rate = 30%

Tax on sale of asset = 2497* 30%

                                     = 749.1

Net cash flow from sale of asset = 3906 - 749.1 = 3156.9 or 3157

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jeff jeffy answered 2 months ago
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