Homework Answers
a). Book Value after 3rd year = Cost of Equipment * [1 - Accumulated Depreciation Rates]
= $297,000 * [1 - (0.20 + 0.32 + 0.192)]
= $297,000 * [1 - 0.712]
= $297,000 * 0.288 = $85,536
b). After-tax salvage value = Salvage Value - [Tax Rate * (Salvage Value - Book Value after 3rd year)]
= $176,000 - [0.35 * ($176,000 - $85,536)]
= $176,000 - [0.35 * $90,464]
= $176,000 - $31,662.40 = $144,337.60
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The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $297,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $176,000 and its tax rate is 35%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1.
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