Question

A company is evaluating a new 4-year project.

The equipment necessary for the project will cost $3,800,000 and can be sold for $745,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 34 percent.
What is the aftertax salvage value of the equipment?

Answer 1

$ 714.957,6‬

Step-by-step explanation:

We should solve for the book value afer four years:

3,800,000 x (0.2 + 0.32 + 19.2 + 11.52) =

3,800,000 x 0,8272‬ = 3.143.360

book value: 3,800,000 - 3,143,360 = 656.640‬

Now, we compare it against our expected sales value

745,000 - 656,640 = 88,360

This gain will be taxes at 34%

88,360 x 34% = 30.042,4‬

Now, the after tax salvage value will be :

745,000 - 30,042.4 = 714.957,6‬