Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of...
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $41.50 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $18.30 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 1 decimal place.)
Homework Answers
Annual depreciation=(Cost-Salvage value)/Useful Life
=(41.5/5)=$8.3 million/year
Hence book value as on date of sale=Cost-Accumulated Depreciation
=41.5-(8.3*3)=16.6 million
Hence gain on sale=(18.3-16.6)=1.7 million
Hence after-tax cash flow=Sale proceeds-(Tax rate*Gain on sale)
=18.3-(1.7*0.3) million
=$17.8 million(Approx).
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