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 $9,100,000 and will be sold for $2,600,000 at the end of the project. If the tax rate is 25 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule) (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567)

Answer 1

$2,343,120

Step-by-step explanation:

The computation of the after tax salvage value of the asset is shown below:

Written down cost of asset after 4 years = Acquisition cost of an asset - 4 years depreciation

= $9,100,000 × (100 - 20 - 32 -19.20 - 11.52)%

= $1,572,480

Refer to the MACRS table

Now

Selling price = $2,600,000

Gain on Sale is

= $2,600,000 - 1,572,480

= $1,027,520

So,

Tax on Gain is

= $1,027,520 × 25%

= $256,880

So,

After tax salvage value = Sales Price - gain on tax

= $2,600,000 - $256,880

= $2,343,120