Troy Industries purchased a new machine 3 years ago for $80,000. It is being dep

Question

Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2 on page 000. Assume a 40% tax rate.

Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2 on page 000. Assume a 40% tax rate.

a.What is the book value of the machine? b.Calculate the firm’s tax liability if it sold the machine for each of the following amounts: $100,000; $56,000; $23,200; and $15,000.

Explanation / Answer

Answer:a The book value of the machine is:

=$80000/1.40=$57142.86

Answer:b The company is liable for 29% of the taxes after 3 years.

Amount ($) Taxes (amount *40%) Liability (Taxes*29%) 100000 40000 11600 56000 22400 6496 23200 9280 2691.2 15000 6000 1740

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