An asset used in a four-year project falls in the five-year MACRS class for tax
ID: 2791102 • Letter: A
Question
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,150,000 and will be sold for $1,350,000 at the end of the project. If the tax rate is 34 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7. An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,150,000 and will be sold for $1,350,000 at the end of the project. If the tax rate is 34 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7.Explanation / Answer
Year
MACRS %
Depreciation
Accumulated Depreciation
Book Value
1
0.2
1230000
1230000
4920000
2
0.32
1968000
3198000
2952000
3
0.192
1180800
4378800
1771200
4
0.1152
708480
5087280
1062720
5
0.1152
708480
5795760
354240
6
0.0576
354240
6150000
0
After 4 year book value of asset is $1,062,720, while it is sold at $1,350,000
Gain on sale of asset = 1,350,000 - 1,062,720 = $287280
Tax will be levied in the gain on sale of asset
Tax = 287280 * 0.34 = 97675.2
After tax salvage value of asset = 1,350,000 - 97675.2 = $1252324.8
Year
MACRS %
Depreciation
Accumulated Depreciation
Book Value
1
0.2
1230000
1230000
4920000
2
0.32
1968000
3198000
2952000
3
0.192
1180800
4378800
1771200
4
0.1152
708480
5087280
1062720
5
0.1152
708480
5795760
354240
6
0.0576
354240
6150000
0
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