Russell’s is considering purchasing $388,000 of equipment for a four-year projec

Question

Russell’s is considering purchasing $388,000 of equipment for a four-year project. The equipment falls in the five-year MACRS class with annual percentages of .2, .32, .192, .1152, .1152, and .0576 for years 1 to 6, respectively. At the end of the project the equipment can be sold for an estimated $174,000. The required return is 14.6 percent and the tax rate is 34 percent. What is the amount of the aftertax salvage value of the equipment?

Please explain ever step Russell’s is considering purchasing $388,000 of equipment for a four-year project. The equipment falls in the five-year MACRS class with annual percentages of .2, .32, .192, .1152, .1152, and .0576 for years 1 to 6, respectively. At the end of the project the equipment can be sold for an estimated $174,000. The required return is 14.6 percent and the tax rate is 34 percent. What is the amount of the aftertax salvage value of the equipment?

Please explain ever step

Please explain ever step

Explanation / Answer

Answer:

After tax salvage value = cash proceeds – tax on gain or loss.

=$174000-$36364.36

=$137635.64

Tax on gain on loss = (cash proceeds – book value) × tax rate.

=($174000-67046)*0.34

=36364.36

Year Dep rate Depreciation Book value 1 0.2 77600 310400 2 0.32 124160 186240 3 0.192 74496 111744 4 0.1152 44698 67046 5 0.1152 44698 22349 6 0.0576 22349 0

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