Evergreen Corporation, a calendar year, accrual basis taxpayer, requires a new piece of equipment for use in its manufacturing business. The company would like to determine whether it would be cost beneficial to invest in the equipment and has asked you to help with some of the calculations. The equipment will cost $100,000 and qualifies as a 3 year asset under the MACRS classification. Evergreen will purchase the equipment on January 1, 2021, use the equipment for 3 years, and sell it in October of 2023. Evergreen estimates that it could sell the equipment for $15,000 in 2023. Assume that bonus depreciation and the Sec. 179 expensing option are not available.

PART 1: Calculate the total depreciation deductions Evergreen will take on the equipment for 2021, 2022, and 2023 assuming Evergreen sells the equipment in 2023.

Part 2: Assume Evergreen takes the following depreciation deductions on the equipment:

2021: 30,000

2022: 40,000

2023: 20,000

Calculate Evergreen's gain or loss if it sells the equipment for $15,000 in 2023.

Part 3: Assume Evergreen's 2023 taxable income before the sale of the equipment is $100,000 and that it will recognize a $7,000 gain on the sale of the equipment. Calculate Evergreen's after-tax cash flow from the sale of the equipment (the sales price is $15,000).