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Manzana Inc. is buying a piece of equipment. The equipment costs $3,000,000. The equipment is considered...

Manzana Inc. is buying a piece of equipment. The equipment costs $3,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 6 years for $300,000, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)? The marginal tax rate is 20 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%.

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Answer #1

At the end of year 6, the equipment will be fully depreciated hence book value will be zero

so tax will be applicable on the entire sale value

We see that the after-tax cash flow from the sale=sale value*(1-tax rate)=300000*(1-20%)=240000.00

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