Question

8 years ago, a new machine cost $5 million to purchase and an additional $610,000 for...

8 years ago, a new machine cost $5 million to purchase and an additional $610,000 for the installation. The machine was to be linearly depreciated to zero over 20 years.

The company has just sold the machine for $3 million, and its marginal tax rate is 25%.

1. What is the annual depreciation?

2. What is the current book value?

3. What is the after-tax salvage value?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Annual Depreciation = [ Capitalized Value - Scrap ] / Use ful Life

Capitalized value = Purchase cost + Installation

= $ 5,000,000 + $ 610,000

=$ 5,610,000

Annual Dep = [ $ 5610000 - 0 ] / 20

= $ 280500

Book Value = Capitalized Value - [ Annual Dep * No. of years passed ]

= $ 5610000 - [ 280500* 8 ]

= $ 5610000 - $ 2244000

= $ 3366000

After Tax Salvage Value = Salvage Value + Tax shield on Loss

Particulars Amount Formula
Sale Value $ 30,00,000.00 Given
Book Value $ 33,66,000.00 Part B
Loss $   3,66,000.00 Book Value- Sale Value
Tax Shield On Loss $      91,500.00 Loss * Tax rate
After Tax salavage Value $ 30,91,500.00 Sale Value + Tax shield on Loss
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be...
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The current machine being used was purchased 3 years ago at a cost of $40,000 and it is being depreciated down to zero over its 5 year life. The current machine's salvage value now is $10,000....
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be...
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The current machine being used was purchased 3 years ago at a cost of $40,000 and it is being depreciated down to zero over its 5 year life. The current machine's salvage value now is $10,000....
A corporation bought a machine 5 years ago for $144,000 and sold it today for $55,000....
A corporation bought a machine 5 years ago for $144,000 and sold it today for $55,000. The machine was being depreciated to a zero salvage value using straight-line method over 8 years. If the firm’s tax rate is 34%, what is the tax effect of the sale?
Veridian Dynamics is considering the purchase of a new cloning machine, which will cost $390 million...
Veridian Dynamics is considering the purchase of a new cloning machine, which will cost $390 million plus an additional $10 million to ship and install. The new machine will replace the existing machine, which has zero book value and could be sold today for $40 million. The new machine will have a 4 year useful life and will be depreciated to zero using the straight line method. The machine will require $10 million worth of spare parts to be pruchased...
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
The Tomak Company purchased a machine three years ago for $160,000. It is being depreciated on...
The Tomak Company purchased a machine three years ago for $160,000. It is being depreciated on a straight-line basis over an eight-year life to a zero salvage value. This particular machine was purchased because the firm anticipated a high level of production that never materialized. The firm is considering selling this machine and purchasing a smaller model. It could sell this machine today for its book value of $100,000. The smaller model costs $50,000, including installation costs, and would be...
Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine...
Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 4 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? Year Depreciation Rate 1 0.2...
The corporation purchased a machine for 1 million. Freight and installation charges amounted to 3% of...
The corporation purchased a machine for 1 million. Freight and installation charges amounted to 3% of the purchase price. If the machine shall be depreciated over a period of 8 years with a salvage value of 12%. Determine the depreciation charged during the 5th year using the sum of the years digit method
The corporation purchased a machine for 1 million. Freight and installation charges amounted to 3% of...
The corporation purchased a machine for 1 million. Freight and installation charges amounted to 3% of the purchase price. If the machine shall be depreciated over a period of 8 years with a salvage value of 12%. Determine the depreciation charged during the 5th year using the sum of the years digit method.
Adam Smith is considering automating his pin factory with the purchase of a $475,000 new machine...
Adam Smith is considering automating his pin factory with the purchase of a $475,000 new machine in replacement of old machine. Shipping and installation would cost $6,000. The old machine having a depreciated book value of $200,000 is sold with market value of $300,000. The pin factory requires an additional working capital of $80,000. The machine has a useful life of 4 years The firm's marginal tax rate is 40 percent. The incremental cash outflow at time period 0 is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT