Question

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $5,150,000 and will be sold for $1,575,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset

Answer 1

$1,424,282.40

Step-by-step explanation:

Missing word "Refer to Table 5 YEAR :20%,32%,19.2%,11.52%"

Book value as on date of sale = Cost - Accumulated Depreciation

Book value as on date of sale = $5,150,000*(1 - 0.2 - 0.32 - 0.192 - 0.1152)

Book value as on date of sale = $5,150,000*0.1728

Book value as on date of sale = $889,920

Gain on sale = $1,575,000 - $889,920

Gain on sale = $685,080

After-tax salvage value = Sale proceeds - (Gain on sale*Tax rate)

After-tax salvage value = $1,575,000 - ($685,080*22%)

After-tax salvage value = $1,575,000 - $150,717.60

After-tax salvage value = $1,424,282.40