If ABC Co purchases a new delivery van it will sell its old

If ABC Co. purchases a new delivery van, it will sell its old delivery van. The cost of the old delivery van is $25,000 and with accumulated depreciation of $20,000 (Straight-line depreciation; 5 year life $0 salvage value). At the end of year 4, ABC sells the delivery van for $6,300. If you assume a 22% tax rate, what is the after-tax cash flow from the sale? O $1,586 O $1300 O $6,014 O $6,586

Solution

Book value as on date of sale=(25000-20000)=$5000

Hence gain on sale=(6300-5000)=$1300

Hence after-tax cash flow=Sale proceeds-(Tax rate*Gain on Sales)

which is equal to

=6300-(0.22*$1300)

=$6014.