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Cost recovery. Richardses' Tree Farm, Inc. purchased a new aerial tree trimmer for $94,000. It is classified in the property class category of a single-purpose agricultural and horticultural structure. Then the company sold the tree trimmer after four years of service. If a seven-year life and MACRS, E , was used for the depreciation schedule, what is the after-tax cash flow from the sale of the trimmer (use a 40% tax rate) if a. the sales price was $35,000? b. the sales price was $29,365.60? c. the sales price was $21,000? Data Table a. If the sales price is $35,000, what is the after-tax cash flow? MACRS Fixed Annual Expense Percentages by Recovery Class (Round to the nearest cent.) Click on this icon o to download the data from this table b. If the sales price is $29,365.60, what is the after-tax cash flow? (Round to the nearest cent.) Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% c. If the sales price is $21,000, what is the after-tax cash flow? 44.45% 32.00% 24.49% 18.00% (Round to the nearest cent.) 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 11.52% 8.93% 9.22% 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 6.55% 10 6.55% 11 3.28%

Cost recovery. Richardses' Tree Farm, Inc. purchased a new aerial tree trimmer for $94,000. It is classified in the property class category of a single-purpose agricultural and horticultural structure. Then the company sold the tree trimmer after four years of service. If a seven-year life and MACRS, E , was used for the depreciation schedule, what is the after-tax cash flow from the sale of the trimmer (use a 40% tax rate) if a. the sales price was $35,000? b. the sales price was $29,365.60? c. the sales price was $21,000? Data Table a. If the sales price is $35,000, what is the after-tax cash flow? MACRS Fixed Annual Expense Percentages by Recovery Class (Round to the nearest cent.) Click on this icon o to download the data from this table b. If the sales price is $29,365.60, what is the after-tax cash flow? (Round to the nearest cent.) Year 3-Year 5-Year 7-Year 10-Year 1 33.33% 20.00% 14.29% 10.00% c. If the sales price is $21,000, what is the after-tax cash flow? 44.45% 32.00% 24.49% 18.00% (Round to the nearest cent.) 14.81% 19.20% 17.49% 14.40% 4 7.41% 11.52% 12.49% 11.52% 11.52% 8.93% 9.22% 5.76% 8.93% 7.37% 7 8.93% 6.55% 8 4.45% 6.55% 6.55% 10 6.55% 11 3.28%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 6

**Cost Recovery in Agricultural Equipment** Richardses' Tree Farm, Inc. invested in a new aerial tree trimmer worth $94,000, classified under the property class for a single-purpose agricultural and horticultural structure. After four years of service, the company sold the trimmer. Using a seven-year MACRS (Modified Accelerated Cost Recovery System) schedule and a 40% tax rate, the after-tax cash flow from the sale is calculated for various sale prices. **Scenarios:** - a. Sale Price: $35,000 - b. Sale Price: $29,365.60 - c. Sale Price: $21,000 **Questions:** Determine the after-tax cash flow for each scenario, rounding to the nearest cent. **MACRS Depreciation Table Explanation:** The table lists fixed annual expense percentages according to different recovery classes: - **3-Year:** Values range from 33.33% to 3.28%, with the highest depreciation in the first year. - **5-Year:** Values range from 20.00% to 5.76%, showing rapid depreciation early on. - **7-Year:** Values range from 14.29% to 8.93% over the first four years, with decreasing percentages thereafter. - **10-Year:** Values start at 10.00%, decreasing progressively to 6.55%. Each column specifies depreciation percentages for respective years, with the percentage decreasing as the asset ages, except where noted at the end of the asset's life. This understanding is crucial for determining cost recovery and ultimately evaluating a company's financial decisions involving asset disposition.
Transcribed Image Text:**Cost Recovery in Agricultural Equipment** Richardses' Tree Farm, Inc. invested in a new aerial tree trimmer worth $94,000, classified under the property class for a single-purpose agricultural and horticultural structure. After four years of service, the company sold the trimmer. Using a seven-year MACRS (Modified Accelerated Cost Recovery System) schedule and a 40% tax rate, the after-tax cash flow from the sale is calculated for various sale prices. **Scenarios:** - a. Sale Price: $35,000 - b. Sale Price: $29,365.60 - c. Sale Price: $21,000 **Questions:** Determine the after-tax cash flow for each scenario, rounding to the nearest cent. **MACRS Depreciation Table Explanation:** The table lists fixed annual expense percentages according to different recovery classes: - **3-Year:** Values range from 33.33% to 3.28%, with the highest depreciation in the first year. - **5-Year:** Values range from 20.00% to 5.76%, showing rapid depreciation early on. - **7-Year:** Values range from 14.29% to 8.93% over the first four years, with decreasing percentages thereafter. - **10-Year:** Values start at 10.00%, decreasing progressively to 6.55%. Each column specifies depreciation percentages for respective years, with the percentage decreasing as the asset ages, except where noted at the end of the asset's life. This understanding is crucial for determining cost recovery and ultimately evaluating a company's financial decisions involving asset disposition.
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