Question

An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for $1,560,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule)

Answer 1

= $1,513,325.

Step-by-step explanation:

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

= 7,800,000*(1-0.2-0.32-0.192-0.1152)

= $1,347,840

Therefore gain on sale = 1,560,000 - 1,347,840

= $212,160

So, after-tax salvage value = Sale proceeds - (Tax rate * Gain on sale)

=1,560,000 - (212,160 * 0.22)

=$1,513,325(Approx).