ezto.mheducation.com/hm.tpx G LCU:Home C Your Account KnightCite Citation s.. G

ID: 2791217 • Letter: E

Question

ezto.mheducation.com/hm.tpx G LCU:Home C Your Account KnightCite Citation s.. G chaplink . :: Apps connect. BOM4312: B1 Fall 2017 FINANCE Chapter 12 Homework Assignment Question 6 (of 6) 6. 16.70 points Your firm needs a computerized machine tool lathe which costs $43,000 and requires $11,300 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls Into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 13 If the lathe can be sold for $4,300 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.) Salvage value after tax Hints References eBook & Resources Hint#1 Checkmy.yror esc FI F2 F3 F4 F5 F6 FT

Explanation / Answer

We have following information

Cost of machine = $43,000 (maintenance cost will not add in depreciation calculation)

Salvage value after three years = $4,300

Depreciation schedule of the machine

Year (n)

Cost of Machine

3-Year MACRS depreciation percentage

Depreciation

Book Value end of the year

$43,000

33.33%

$14,332

$28,668.10

44.45%

$19,113.50

$9,554.60

14.81%

$6,368

$3,186.30

Book value of machine after three years = $3,186.30

Tax rate = 34%

And discount rate = 13%

After tax salvage value = salvage value – {(salvage value – book value)*tax rate}

= $4,300 – {($4,300 -$3,186.30)*34%}

=$4,300 – {$1,113.70*34%}

=$4,300 - $378.66

=$3,921.34

Salvage value after tax is $3,921.34

Present value of after-tax salvage value =$3,921.34/ (1+discount rate) ^year

=$3,921.34/ (1+13%) ^3

=$2,717.69