I have solved the first part and am just looking for help wi

I have solved the first part and am just looking for help with the second part, i.e. finding the after-tax cash flows for each value.

Brock Florist Company buys a new delivery truck for $29,000, a light truck. Using MACRS tables for a five-year asset, calculate the book value at the end of the year 4. Brock Florist Company sold its delivery truck after three years (Prob. 1) Using a 30% tax rate, what is the after-tax salvage value for the truck at each of the following sale prices? Sales Price ($) $15,000 $10,000 $5,000 After-Tax Cash Flow (S)

Solution

Find the book value at the end of year 3 (as it is sold after 3 years) -

Book value = Cost of Truck - Depreciation for 3 years = $29000 - (20% x $29000) - (32% x $29000) - (19.20% x $29000) = $8,352

Salvage value is $15,000

Gain on sale = Salvage value - Book Value = $15,000 - $8,352 = $6,648

Tax on gain = Tax rate x Gain = 30% x $6,648 = $1,994.40

We have computed the second part of the After-tax salvage value formula given [ T (SV - BV) ]

After-tax salvage = $15,000 - $1,994.40 = $13,005.60

Now that we have understood the formula, we can simply input values in that -

Salvage value is $10,000

After-tax salvage = $10,000 - 30% x ($10,000 - $8,352) = $9,505.60

Salvage value is $5000

After-tax salvage = $5,000 - 30% x ($5,000 - $8,352) = $6,005.60

In this case, their would be tax savings on sale as salvage value is less than book value, i.e., their is a loss on sale.