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 $4,500. If you assume a 22% tax rate, what is the after-tax cash flow from the sale? $3,510 $4,610 $8,400 $3,900 Question 9 1 pts 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?

Solution

Particulars Case 1: Selling price = $4500 Case 2: Selling price = $6300 a. Cost of Van 25000 25000 b. Life of Van 5 yrs 5 yrs c. Salvage value 0 0 d. Depreciation per year using SLM = a-c/b 5000 5000 e. Accumulated depreciation at the end of 4th year (d*4) 20000 20000 f. Book value of van at the end of year 4 (a-e) 5000 5000 g. Selling price of van 4500 6300 h. Gain on sale 0 1300 i. Tax on gains (h*22%) 0 286 j. After tax cashflow from sale of van (g-i) 4500 6014 Please hit the like button if the answer helped you else leave a comment for further clarification. Thank you! All the best!