An asset used in a four-year project falls in the five-year MACRS class for tax

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 $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salvage value of the asset? Refer to MACRS schedule. SHOW HOW YOU GOT YOUR ANSWER. (Do not round intermediate calculations and round your answer to 2 decimal places. Enter your answer in dollars, not millions of dollars, i.e. 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 $6,080,000 and will be sold for $1,280,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salvage value of the asset? Refer to MACRS schedule. SHOW HOW YOU GOT YOUR ANSWER. (Do not round intermediate calculations and round your answer to 2 decimal places. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Explanation / Answer

FCInv = 6080000     Sell value (ST) = 1280000   

After tax Salvage value = 1280000 + (1280000 - 1033600) * 0.35

                         = $ 1,366,240

Year-0 Year-1 Year-2 Year-3 Year-4 FCInv 6080000 Depreciation ( MACRS) as a percentage of FCInv 20% 32% 19% 12% Depreciation ( MACRS) value 1216000 1945600 1155200 729600 Book value at the end of the year 4864000 2918400 1763200 1033600

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