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Manzana Inc. is buying a piece of equipment. The equipment costs $4,000,000. The equipment is considered...

Manzana Inc. is buying a piece of equipment. The equipment costs $4,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 5 years for $500,000, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)? The marginal tax rate is 30 percent.

The annual expense percentage for a 5-year MACRS property from year 1 to 6 respectively are: 20.00%; 32.00%; 19.20%; 11.52%; 11.52: and 5.76%.

In entering your answer, do not use $ sign, use commas to separate thousands, and round to the nearest dollar. For example, if your obtain $30,450.92 then enter 30,451; if you obtain $30,000.00 then enter 30,000

Solutions

Expert Solution

MACRS 5 year 1 2 3 4 5 6
Depreciation rate 20% 32% 19.20% 11.52% 11.52% 5.76%
Cost of equipment           4,000,000
Less: Accumulated depreciation till 5 year period           3,769,600
Book value               230,400
Sale price               500,000
Gain on sale ( sale price - book value)               269,600
Tax on gain (30%)                 80,880
After-tax cash flow from sale (sale price - taxes)               419,120

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