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Wertheim Industries has purchased industrial equipment for a new project, at a value of $4.25 million. The external accountan
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Answer #1

First we calculate the depreciation for full 7years period and along with book value at each period ended :-

Purchase price of asset = $4,250,000

years MACR's rates Depreciation for year(Purchase price * MACRs) Book value at end of the year
1 14.29% $607,325.00 $3,642,675.00
2 24.49% $1,040,825.00 $2,601,850.00
3 17.49% $743,325.00 $1,858,525.00
4 12.49% $530,825.00 $1,327,700.00
5 8.93% $379,525.00 $948,175.00
6 8.92% $379,100.00 $569,075.00
7 8.93% $379,525.00 $189,550.00

Calculate the book value and NSCF at end of year 5 :-

Book value at end of years (BV) =$ 948,175.00

NSCF:-

Sale value       1,500,000.00
Less- Book value           948,175.00
Gain on sale           551,825.00
tax@21% on gain           115,883.25
NSCF (sale value - tax)       1,384,116.75

NSCF if assets sold at end of year 5 = $1,384,116.75

Calculate the book value and NSCF at end of year 6 :-

Book value at end of years (BV) =$ 569,075.00

NSCF:-

Sale value           375,000.00
Less- Book value $569,075.00
Gain / (loss) on sale         (194,075.00)
tax/(tax shield) @21% on gain           (40,755.75)
NSCF (sale value - tax)           415,755.75

NSCF if assets sold at end of year 6 = $415,755.75

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