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Your firm needs a machine which costs $130,000, and requires $28,000 in maintenance for each year...

Your firm needs a machine which costs $130,000, and requires $28,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 13%. If this machine can be sold for $13,000 at the end of year 3, what is the after tax salvage value?

a) $11,821.55

b) $6,261

c) $3,367.00

d) $8,450.00

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Answer #1
Asset cost $    130,000.00
Less: Depreciation charged $    120,367.00 =130000*(0.3333+0.4445+0.1481)
Book value $         9,633.00
Sale value of machine $      13,000.00
Profit/(Loss) on sale $         3,367.00
Less: Tax payable @ 35% $         1,178.45
After tax salvage value $      11,821.55
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