Your firm needs a computerized machine tool lathe which costs $57,000 and requir

Question

Your firm needs a computerized machine tool lathe which costs $57,000 and requires $12,700 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 11 percent.

If the lathe can be sold for $5,700 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)

$   

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Your firm needs a computerized machine tool lathe which costs $57,000 and requires $12,700 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 11 percent.

Explanation / Answer

Asset cost $            57,000.00 Less: Depreciatioon charged $            52,776.30 WDV of machine at the time of sale $              4,223.70 Sale value of machine $              5,700.00 Profit/(Loss) on sale $              1,476.30 Less: Tax @34% $                  501.94 After tax cash flows from sale of new asset $              5,198.06

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