Cost recovery. Brock Florist Company bought a new delivery truck for $29,000. It
ID: 2715321 • Letter: C
Question
Cost recovery. Brock Florist Company bought a new delivery truck for $29,000. It was classified as a light-duty truck. The company sold its delivery truck after three years of service. If a five-year life and MACRS. was used for the depreciation schedule, what is the after-tax cash flow from the sale of the truck (use a 30% tax rate) if the sales price was $14,000? the sales price was $9,000? the sales price was $1,000? If the sales price was $14,000. what would be the after-tax cash flow? (Round to the nearest cent.) If the sales price was $9,000. what would be the after-tax cash flow? (Round to the nearest cent.) If the sales price was $1,000. what would be the after-tax cash flow? (Round to the nearest cent.)Explanation / Answer
Book value at year 3 = 29000 - 20648 = $ 8352
a)Capital gaine =sale value -book value
= 14000 - 8352
= 5648
Capital gain tax = 5648 * .30 = 1694.4
After tax cash flow = 14000 - 1694.4 =$ 12305.60
b)Capital gain = 9000 - 8352 = $ 648
Tax = 648 *.30 = 194.4
After tax cash flow = 9000 - 194.4 = $ 8805.6
c)Capital gain /(loss) = 1000 - 8352 = - 7352
Tax savings on loss =- 7352 *.3 = 2205.6
After tax cash flow = 1000 - (-2205.6)
= 1000 + 2205.6
= 3205.6
year RATE depreciation Accumulated depreciation 1 20% 5800 [29000*.20] 5800 2 32% 9280 [29000*.32] 15080 3 19.2% 5568 [29000*.192] 20648