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

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 $8,100,000 and will be sold for $1,850,000 at the end of the project.

If the tax rate is 30 percent, what is the aftertax salvage value of the asset? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Macrs Table 5 year:

20%
32%
19.20%
11.52%

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 $8,100,000 and will be sold for $1,850,000 at the end of the project.

Explanation / Answer

Ans) Accumulated Depreciation for the first four years

               = 8,100,000(0.20 + 0.32 + 0.192 + 0.1152) = 8,100,000*0.8272 = $6,700,320

        Book Value of asset after 4Years = $8,100,000 - $6,700,320 = $13,99,680

The asset is sold at a gain

   The after tax salvage value is = 1,850,000 + (13,99,680 - 1,850,000)*0.30

= 1,850,000 - 135,096

= $1,714,904   

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