Cost recovery. Richardses\' Tree Farm, Inc. purchased a new aerial tree trimmer
ID: 2782174 • Letter: C
Question
Cost recovery. Richardses' Tree Farm, Inc. purchased a new aerial tree trimmer for $94,000. It is classified in the property class category of a single-purpose agricultural and horticultural structure. Then the company sold the tree trimmer after four years of service. If a seven-year life and MACRS, E, was used for the depreciation schedule, what is the after-tax cash flow from the sale of the trimmer (use a 35% tax rate) if a- the sales price was $36,000? b. the sales price was $29,365.60 c. the sales price was $21,000? a. If the sales price is $36,000, what is the after-tax cash flow? s (Round to the nearest cent,) b. If the sales price is $29,365.60, what is the after-tax cash flow? s11 (Round to the nearest cent) c. If the sales price is $21,000, what is the after-tax cash flow? Round to the nearest cent) Enter your answer in each of the answer boxes. 6Explanation / Answer
The MACRS 7 -year depreciation rates are : 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, 4.46%
Total depreciation after 4 year life is = 14.29% + 24.49% + 17.49% + 12.49% = 68.76%
Purchase price = 94,000
Depreciation = 68.76% * 94,000 = 0.6876 * 94,000 = 64,634.40
Book Value = 94,000 - 64,634.40 = 29,365.60
Book Value = $29,365.60
So taxes are paid on any amount greater than this
(a) Sold for 36,000
Tax is paid on 36,000 - 29,365.60 = 6,634.40
Tax of 35% = 0.35 * 6,634.40 = 2,322.04
After tax cash flow = 36,000 - 2,322.04 = 33,677.96
After tax cash flow = $33,677.96
(b) Sold for 29,365.60. No tax since this is the book value
After tax cash flow = $29,365.60
(c) Sold for 21,000. No tax since it is below book value
After tax cash flow = $21,000