To calculate the expected after-tax cash flow from selling the equipment, we need to determine the book value of the equipment after 7 years and calculate the tax effect on the sale of the equipment. Here’s the step-by-step approach:

Step 1: Calculate Depreciation and Book Value

Since the equipment is purchased for $452,000 and uses accelerated depreciation, we will apply each year's depreciation rate to find the accumulated depreciation over 5 years (since no depreciation is listed for years 6 and 7). After finding the accumulated depreciation, we can calculate the book value at the end of year 7.

Depreciation Calculation

• Year 1 Depreciation = $452,000 × 44% = $198,880
• Year 2 Depreciation = $452,000 × 23% = $103,960
• Year 3 Depreciation = $452,000 × 16% = $72,320
• Year 4 Depreciation = $452,000 × 14% = $63,280
• Year 5 Depreciation = $452,000 × 3% = $13,560

Total Accumulated Depreciation (after 5 years)

$198,880 + 103,960 + 72,320 + 63,280 + 13,560 = 452,000$ This shows that the equipment has been fully depreciated by the end of year 5, so the book value after 7 years will be $0.

Step 2: Calculate Tax on Sale of Equipment

Since the equipment has a book value of $0 after 7 years, the entire sale price of $71,000 will be considered a gain for tax purposes.

Tax on Sale

$\text{Tax on Sale} = \text{Sale Price} \times \text{Tax Rate}$ $= 71,000 \times 0.30 = 21,300$

Step 3: Calculate After-Tax Cash Flow

The after-tax cash flow from selling the equipment is calculated by subtracting the tax from the sale price.

$\text{After-Tax Cash Flow} = \text{Sale Price} - \text{Tax on Sale}$ $= 71,000 - 21,300 = 49,700$

Answer

The expected after-tax cash flow from selling the equipment is $49,700.

Would you like more details or have any further questions?

Here are some related questions that might deepen your understanding:

1. How would the cash flow change if the tax rate were different?
2. What would be the after-tax cash flow if the equipment were sold for a different amount?
3. How does accelerated depreciation impact the tax effects of an asset sale?
4. What if the company used straight-line depreciation instead of accelerated depreciation?
5. How would the after-tax cash flow change if the equipment was sold before it was fully depreciated?

Tip: Remember, fully depreciated assets generally result in higher taxable gains upon sale, as the entire sale price may be taxable.