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

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 $8,300,000 and will be sold for $1,870,000 at the end of the project.

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 $8,300,000 and will be sold for $1,870,000 at the end of the project.

If the tax rate is 34 percent, what is the aftertax salvage value of the asset? 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 $8,300,000 and will be sold for $1,870,000 at the end of the project. If the tax rate is 34 percent, what is the aftertax salvage value of the asset?

Explanation / Answer

Book value after 4 years = 8,300,000*(1-20%-32%-19.2%-11.52%) = 1,434,240

Tax on sale = (1,870,000-1,434,240)*34% = 148,158.4

After tax salvage value = 1,870,000-148,158.4 = 1,721,841.6

Hope this helped ! Let me know in case of any queries.

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