Part A: Morris Motors just purchased some 5-year property at a cost of $216,000 and the property will be depreciated based on MACRS.
1) Which one of the following will correctly give you the book value of this equipment at the end of year 2?
Year 1: 20%
Year 2: 32%
Year 3: 19.2%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%
Part B: As asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,500,000 and will be sold for $1,600,000 at the end of the project. If the tax rate is 35%
2) What is the aftertax increment to the cash flow from the sale of the asset?