Question

Your firm needs a computerized machine tool lathe which costs $43,000 and requires $11,300 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 13 percent.If the lathe can be sold for $4,300 at the end of year 3, what is the after-tax salvage value?

Answer 1

=3921.34

Step-by-step explanation:

We first have to calculate the book value.

The Book value = (price at purchase)x(1-summation of MACR rates from start to the current date)

We have purchase price at $43000

= (43000)x(1-0.3333-0.4445-0.1481)

= 43000x0.0741

= 3186.3

Then the After tax salvage value = selling price x (1-tax rate) + the book valuexl x tax rate

= 4300x(1-0.34)+3186.3*0.34

= 2,838+1,083.342

= 3921.342

This is the after-tax salvage value