Cost recovery. Brock Florist Company bought a new delivery truck for $29,000. It
ID: 2782177 • 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 the sale of the tr ck use a 30% tax rate) if a. the sales price was $15,000? b. the sales price was $10,000? c. the sales price was $5,000? a. If the sales price was $15,000, what would be the after-tax cash flow? (Round to the nearest cent.) b· lfthe sales price was $10,000, what would be the after-tax cash flow? 4] (Round to the nearest cent) c. If the sales price was $5,000, what would be the after-tax cash flow? Round to the nearest cent.) Enter your answer in each of the answer boxes. 6Explanation / Answer
Calculation of depreciation on New delivery Truck using 5 Year MACRS depreciation rates Year Cost of Delivery Truck Depreciation rates Depreciation 1 $29,000 20% $5,800 2 $29,000 32% $9,280 3 $29,000 19.20% $5,568 Book value of delivery truck at the end of 3 rd Year = Cost - Accumulated depreciation = $29000 - $20648 = $8,352 Answer a Calculation of after tax cash flow if sale price of truck was $15000 Sale Price $15,000.00 Less : Book value of truck at the end of 3rd year $8,352.00 Gain on sale $6,648.00 Tax @ 30% on Gain $1,994.40 After tax Cash flow (Sale price - Tax) $13,005.60 Answer b Calculation of after tax cash flow if sale price of truck was $10000 Sale Price $10,000.00 Less : Book value of truck at the end of 3rd year $8,352.00 Gain on sale $1,648.00 Tax @ 30% on Gain $494.40 After tax Cash flow (Sale price - Tax) $9,505.60 Answer c Calculation of after tax cash flow if sale price of truck was $10000 Sale Price $5,000.00 Less : Book value of truck at the end of 3rd year $8,352.00 Loss on sale -$3,352.00 Tax saving @ 30% on Loss -$1,005.60 After tax Cash flow (Sale price - Tax) $6,005.60