chapt 12 Your firm needs a computerized machine tool lathe which costs $53,000 a
ID: 2613425 • Letter: C
Question
chapt 12
Your firm needs a computerized machine tool lathe which costs $53,000 and requires $12,300 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 12 percent.
If the lathe can be sold for $5,300 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)
If the lathe can be sold for $5,300 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)
Explanation / Answer
Solution:
Depreciation in 3 years will be 14,81 % * $ 53,000 = $ 7584.30.
Tax savings = $ 7584.30 * 34 % = $ 2,578.66
The Lathe will have a remaining book value of 7.41 % * $ 53,000 = $ 3,927.30
Afteer Tax Salvage Value = Book Value + Market Value - Book Value * 1 - Tc
= $ 3,927.30 + $ 5,300 - $ 3,927.30 ( 1 - 0.34)
= $ 4,833.28
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