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Pear Orchards is evaluating a new project that will require equipment of $227,000. The equipment will...

Pear Orchards is evaluating a new project that will require equipment of $227,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $52,800. However, the company plans to keep the equipment for a different project in another state. The tax rate is 34 percent. What aftertax salvage value should the company use when evaluating the current project?

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Answer #1

Calculate the after tax salvage value as follows:

Therefore, the after tax salvage value is $48,184.70.

Formulas:

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