Final answer:
In this case, the aftertax salvage value of the asset is $1,226,380.80.
Step-by-step explanation:
To calculate the aftertax salvage value of the asset, we need to consider the depreciation deductions and the tax rate. Here's how to calculate it:
1. Calculate the accumulated depreciation: Multiply the acquisition cost of the asset ($4,700,000) by the depreciation rate for each year, as provided in the table for the five-year MACRS class.
- Year 1: $4,700,000 * 20.00% = $940,000
- Year 2: $4,700,000 * 32.00% = $1,504,000
- Year 3: $4,700,000 * 19.20% = $902,400
- Year 4: $4,700,000 * 11.52% = $541,440
Accumulated Depreciation = $940,000 + $1,504,000 + $902,400 + $541,440 = $3,887,840
2. Calculate the adjusted basis: Subtract the accumulated depreciation ($3,887,840) from the acquisition cost ($4,700,000).
Adjusted Basis = $4,700,000 - $3,887,840 = $812,160
3. Determine the taxable gain/loss on the sale of the asset: Subtract the adjusted basis ($812,160) from the selling price ($1,350,000).
Taxable Gain/Loss = $1,350,000 - $812,160 = $537,840
4. Calculate the tax liability on the gain: Multiply the taxable gain/loss ($537,840) by the tax rate (23%).
Tax Liability = $537,840 * 0.23 = $123,619.20
5. Calculate the aftertax salvage value: Subtract the tax liability ($123,619.20) from the selling price ($1,350,000).
Aftertax Salvage Value = $1,350,000 - $123,619.20 = $1,226,380.80
Therefore, the aftertax salvage value of the asset is $1,226,380.80.
Your question is incomplete, but most probably the full question was:
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 $4,700,000 and will be sold for $1,350,000 at the end of the project. If the tax rate is 23 percent, what is the after-tax salvage value of the asset? Refer to Table 10.7. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
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 $4,700,000 and will be sold for $1,350,000 at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset
Table:
Propery Class
Year Three-year Five-year Seven-year
1 33.33% 20.00% 14.29%
2 44.45% 32.00% 24.49%
3 14.81 19.20 17.49
4 7.41 11.52 12.49