An asset used in a four-year project falls in the five-year MACRS class (MACRS T

Question

An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $8,500,000 and will be sold for $1,890,000 at the end of the project.

If the tax rate is 30 percent, what is the aftertax salvage value of the asset? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $8,500,000 and will be sold for $1,890,000 at the end of the project.

Explanation / Answer

BOOK VALUE AT THE END OF 4TH YEAR

= COST PRICE - COST PRICE(20% + 32% + 19.20% + 11.52%)

= $8500000 - $8500000 * 82.72%

= $8500000 - $7031200

= $1468800

PROFIT ON SALE

= $1890000 - $1468800

= $421200

TAX ON THE GAIN

= $421200 * 30%

= $126360

AFTER TAX SALVAGE VALUE

= $1890000 - $126360

= $1763640

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