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

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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

Excel formulas used:

jeff jeffy answered 1 year ago

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