A An machine has a book value of 20000 but is sold are scrap

A) An machine has a book value of $20,000 but is sold are scrap for $10,000. If the tax rate for the company selling the machine is 30%, what are the after-tax proceeds from the sale?

B) An machine has a book value of zero but is sold are scrap for $10,000. If the tax rate for the company selling the machine is 30%, what are the after-tax proceeds from the sale?

Solution

a.Loss on sale=20000-10000=$10000

Hence after-tax proceeds=Sale proceeds+(Loss on sale*Tax rate)

=$10000+($10000*30%)

=$13000.

b.

Gain on sale=$10000

Hence after-tax proceeds=Sale proceeds-(Gain on sale*Tax rate)

=$10000-($10000*30%)

=$7000.