It is Jan 1. The Rumpel Felt Company purchased a felt press last year at a cost

Question

It is Jan 1. The Rumpel Felt Company purchased a felt press last year at a cost of $7,500. The machine had an expected life of 3 years at the time of purchase. The4 machine was depreciated using MACRS with a 5-year recovery period. (MACRS depreciation rates are shown in the table .) The division manager reports that, for $12,000 (including installation), a new felt press can be bought. The new felt press will expand sales, because the new fashion is for smoother felt. The old machine's current market value is $1,000. Taxes are 40%. What is the net salvage value of the old press if Rumpel replaces it today? The net salvage value of the old press is $ .

Explanation / Answer

Answer: Book value =original cost -Depreciation

=7500-(7500*(20%+32%)

=$3600

Net salvage value=Book value-Current market value after tax

=3600-(1000*(1-0.40)

=$3000

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