Problem 9-7 Calculating Salvage Value [LO 2] An asset used in a four-year projec

Question

Problem 9-7 Calculating Salvage Value [LO 2]

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 $8,200,000 and will be sold for $1,860,000 at the end of the project.

If the tax rate is 40 percent, what is the aftertax salvage value of the asset? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in 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 $8,200,000 and will be sold for $1,860,000 at the end of the project.

Explanation / Answer

Book Value at the end of four years

BV4 = 8200000 - 8200000 * (0.20 +0.32+0.1920 +0.1152)

= 1416960

after tax salvage value = 1860000 + (1416960- 1860000) * 0.40

= 1682784

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