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what is the expected after-tax cash flow from selling a piece of equipment if xyz purchases the equipment today for $88,700.00, the tax rate is 25.00%, the equipment is sold in 3 years for $16,600.00, and macrs depreciation is used where the depreciation rates in years 1, 2, 3, and 4 are 40.00%, 35.00%, 20.00%, and 5.00%, respectively?

Answer :

Cash outflow from selling the equipment is $13559.

What is cash inflow or outflow?

Cash influx is the term used to describe the money that enters a firm. It might originate from sales, investments, or financing. A cash inflow is the opposite of a cash outflow since it involves money coming into a business. A company's potential to add value for shareholders is dependent on its ability to generate positive cash flows.

At the end of the third year, the equipment's book value

= 88700-(88700×0.95)

=4435

Loan on sale = 4435-16600

=(-12165)

Tax shield on loss on sale = -12165×0.25

=(-3041.25)

Cash outflow from selling the equipment=salvage +Tax shield

=16600+(-3041.25)

=$13558.75

=$13559

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