Question

In 2015, a delivery company purchased a fleet of local delivery trucks for $175,000. These are 5 year assets. This company pays federal tax at a rate of 23% per year. (a) Develop a MACRS depreciation table for this asset, and compute the post-tax income of this company using their gross sales income given below. (b) Is this a good investment if MARR = 25% per year? (c) The company sold the trucks in September 2020 for $18,000. What are the tax implications? Year Gross Annual Income di Di Taxable Income Tax paid Post-Tax income 2015 $250,000 2016 $350,000 2017 $30,000 2018 $150,000 2019 $165,000 2020 $65,000

Answer 1

Solution : -

As the Present Worth of the Project is greater than equal to Zero So This is a good investment .

(C) As the Book Value after 6 Years or Year 2020 is Nil

So the Salvage Value is the Profit on Sale and which is taxable

Therefore tax on Salvage = $18,000 * 0.23 = $4,140

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