$16,569 c. $17,441 d. $18,359 e. $19,325 Marshall-Miller & Company is considerin
ID: 2658186 • Letter: #
Question
$16,569 c. $17,441 d. $18,359 e. $19,325 Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 4 years and then to sell it for $12.500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? 73. Depreciation Rate 0.20 0.32 0.19 0.12 0.11 0.06 Year $8,878 b. $9,345 c. $9,837Explanation / Answer
73). After-Tax Salvage Value = sale price - [(Book Value - Sale Price)xTax. Rate]
= $12,500 - [{$50,000 - ($50,000(1 - 0.2))-($50,000(1 - 0.32))
-($50,000(1 - 0.19))-($50,000(1 - 0.12))} - $12,500]x0.40
=$12,500-[$50,000-$10,000-$16,000-$9,500-$6,000-$12,500]x0.4
= $12,500 - [-$4,000x0.4]
= $12,500 - [-$1,600] = $14,100
2). PV of Annuity Due = P + P[{1 - (1+r)-(n-1)} / r]
= $2,500 + $2,500[{1 - (1.055)-(5-1)} / 0.055]
= $2,500 + $2,500[{1 - 0.8072} / 0.055]
= $2,500 + $2,500[3.5052]
= $2,500 + $8,762.88 = $11,262.88
Option "A" is correct.
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