An asset purchased for $100,000 with S = $20,000 after 5 years was depreciated using the 5-year MACRS rates. Expenses averaged $18,000 per year and the effective tax rate is 30%. The asset was actually sold after 5 years of service for $22,000. MACRS rates in years 5 and 6 are 11.52% and 5.76%, respectively. The after-tax cash flow from the sale is closest to: (choose one)
(a) $27,760
(b) $17,130
(c) $26,870
(d) $20,585
BV5 = 100,000(0.0576) = $5760
DR = 22,000 – 5760 = $16,240
Tax on DR = 16,240(0.30) = $4872
Cash flow = 22,000 – 4872 = $17,128
Answer is (b) $17,130
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