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 $7,600,000 and will be sold for $1,800,000 at the end of the project.

If the tax rate is 35 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).)

If the tax rate is 35 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).)

Explanation / Answer

As per MACRS table ,Total depreciation charged till 4 year project life = 20+32+19.2+11.52=82.72

Book value of asset at end of year 4 = 7,600,000 (1 -.8272)

                                                      = 7,600,000 * .1728

                                                      = 1,313,280

Gain on sale = 1,800,000 -1,313,280 = 486,720

Tax on gain = 486720 *.35 = 170,352

After tax salvage value = 1,800,000 - 170,352 = $ 1,629,648

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