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An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS...

An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS table on page 277), for tax purposes. The asset has an acquisition cost of $19,362,623 and will be sold for $6,416,117 at the end of the project. If the tax rate is 0.35, what is the aftertax salvage value of the asset ?

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Answer #1

Firstly we will find accumulated depreciation for the first four years by adding the MACRS depreciation amounts for each of the first four years and multiply this percentage times the cost of the asset.

Accumulated depreciation = $19,362,623(0.2000 + 0.3200 + 0.1920 + 0.1152) = $16,016,762

Book value at the end of four years = $19,362,623 - $16,016,762 = $3,345,861

Aftertax salvage value = $6,416,117 + ($3,345,861 − $6,416,117)(0.35)

Aftertax salvage value = $5,341,527

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