Question

Your firm needs a computerized machine tool lathe which costs $51,000 and requires $12,100 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 11 percent. If the lathe can be sold for $5,100 at the end of year 3, what is the after-tax salvage value

Answer 1

$4,650.89

Step-by-step explanation:

Year Depreciation rate Depreciation Book Value

(51000*Rate)

1 33.33% $16,998.30 $34,001.70

2 44.45% $22,669.50 $11,332.20

3 14.81% $7,553.10 $3,779.10

4 7.41% $3,779.10

100% $51,000

Sale Value $5,100

Book Value at end of 3 years $3,779.10

Net Gain on Sale $1,320.90

Tax On Gain = $1320.90*0.34

Tax On Gain = $449.11

After-tax salvage value = $5100 - $449.11

After-tax salvage value = $4,650.89