Question

An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $8,300,000 and will be sold for $1,960,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule) (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567)

Answer 1

Depreciation Schedule
Year	Opening Balance	Depreciation Base	Depreciaiton %	Depreciation	Closing Balance
A	B	C	D	E = C*D	F = B-E
1	8300000	8300000	20%	1660000	6640000
2	6640000	8300000	32%	2656000	3984000
3	3984000	8300000	19.20%	1593600	2390400
4	2390400	8300000	11.52%	956160	1434240

Salvage Value = $1,960,000

Tax rate = 22%

Tax on sale = (Sale Value - Book Value at the end of year 4) * tax rate

= ($1,960,000 - $1,434,240) * 22%

= $115,667.20

After tax salvage Value = Salvage Value - Tax on Sale

= $1,960,000 - $115,667.20

= $1,844,332.80

Therefore, After tax Salvage Value for the asset is $1,844,332.80