The GetWellStayWell Company just purchased some equipment that cost $150,000. The asset is in the MACRS...

The GetWellStayWell Company just purchased some equipment that cost $150,000. The asset is in the MACRS 3-year class for depreciation. So the depreciation rates will be .33, .45, .15, and .07 for years 1 through 4, respectively.
However it is expected that the asset will be sold in three years. The tax rate for the company is 21%. What is the after-tax salvage value at the end of YEAR 3 if the company receives: a) (4 pts) $20,000 (at the end of year 3) for the asset? b) (4 pts) $ 5,000 (at the end of year 3) for the asset? SHOW ALL WORK FOR FULL CREDIT.

Solutions

Expert Solution

	First we have to compute the book value at the end of 3th year


	Remaining book value =		10500
	150000*7%

	Book value =		10500


Ans a	sales price is =	20000
	book value =	10,500.00
	Gain on sales=	9,500.00

	Tax on gain =	1,995.00

	After tax cash flow from sale=	18,005.00

	ans =	18,005.00

Ans b	sales price is =	5000
	book value =	10,500.00
	Gain on sales=	(5,500.00)

	Tax on gain =	(1,155.00)

	After tax cash flow from sale=	6,155.00

	ans =	6,155.00

jeff jeffy answered 1 year ago

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