Question

# Vector Corporation purchased a machine seven years ago at a cost of \$840,000. The machine is...

Vector Corporation purchased a machine seven years ago at a cost of \$840,000. The machine is being depreciated using the straight-line method over ten years. The tax rate is 25 percent and the discount rate is 8 percent. If the machine is sold today for \$305,000, what will the aftertax salvage value be?

 \$349,300 \$276,400 \$337,210 \$303,420 \$291,750

 Solution: Answer is 5th option \$291,750 Working Notes: After-tax salvage value = sale value + (book value -sale value) x tax rate Sale value =\$305,000 Book value = cost -depreciation upto date of sale Book value = Cost -((cost /life) x no of period expired) Book value = \$840,000 -((\$840,000 /10) x 7) Book value = \$840,000 -\$588,000 Book value = \$252,000 Tax rate = 25% After-tax salvage value = sale value + (book value -sale value) x tax rate After-tax salvage value = \$305,000 + (\$252,000 -\$305,000) x 25% After-tax salvage value = \$305,000 + (-\$53,000) x 25% After-tax salvage value = \$305,000 + (-13250) After-tax salvage value = \$291,750 Please feel free to ask if anything about above solution in comment section of the question.

#### Earn Coins

Coins can be redeemed for fabulous gifts.