Casey Cash, a professional rodeo clown, is considering the purchase of a new pic
ID: 2456418 • Letter: C
Question
Casey Cash, a professional rodeo clown, is considering the purchase of a new pickup. IF a new truck is purchased he will sell his old truck. The cost of the old pickup is 18000, and the accumulated depreciation on the truck is only 12500. Caseys tax rate is 25%.
1.What is the book value of the truck casey currently owns.
2.IF the truck is sold for $4000 cash what is the after tax cash inflow from the sale of the truck?
3. What is the after tax cash inflow from the sal of the truck if it is sold for 8000?
Explanation / Answer
Casey Cash 1.What is the book value of the truck casey currently owns Cost of the truck currently owns $18,000 Less: Accumulated Depreciation $12,500 Book Value of the truck $ 5,500 2.IF the truck is sold for $4000 cash what is the after tax cash inflow from the sale of the truck? Book Value of the Truck $ 5,500 Less: Sale Value $ 4,000 Loss on sale of truck ($ 4,000- $ 5,500) $ 1,500 Tax advantage @ 25% on loss on sale $ 375 After tax cash inflow on sale of truck ($ 4000 + 375) $ 4,375 3. What is the after tax cash inflow from the sal of the truck if it is sold for 8000? Sale Value $ 8,000 Book Value of the Truck $ 5,500 Gain on sale of truck $ 2,500 Tax @ 25% on gain $ 625 After tax cash inflow on sale of truck ($ 8000 - 625) $ 7,375