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ABC Company purchased $96,171 of equipment 4 years ago. The equipment is 7-year MACRS property. The...

ABC Company purchased $96,171 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $4,624. What is the After-tax Salvage Value if the tax rate is 35%? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

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Answer #1

Book value = purchase price - accumulated depreciation.

Year 1 2 3 4
Depreciation rate 14.29% 24.49% 17.49% 12.49%
Depreciation amount (depreictaion rate*$96,171) 13,742.84 23,552.28 16,820.31 12,011.76

Accumulated depreciation = 13742.84+23552.28+16820.31+12011.76

= $66,127.18

Thus book value = 96171-66127.18 = $30,043.82

Here selling price of today<book value now. Thus,

After tax salvage value = selling price + tax rate*(book value - selling price)

= 4624 + 35%*(30043.82-4624)

= $13,520.94

=  

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