Question

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?

Answer #1

Calculate the after tax salvage value as follows:

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

Formulas:

A company is evaluating a new 4-year project. The equipment
necessary for the project will cost $3,800,000 and can be sold for
$745,000 at the end of the project. The asset is in the 5-year
MACRS class. The depreciation percentage each year is 20.00
percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52
percent, respectively. The company's tax rate is 34 percent. What
is the aftertax salvage value of the equipment?

Brummitt Corp., is evaluating a new 4-year project. The
equipment necessary for the project will cost $2,800,000 and can be
sold for $313,000 at the end of the project. The asset is in the
5-year MACRS class. The depreciation percentage each year is 20.00
percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52
percent, respectively. The company's tax rate is 35 percent. What
is the aftertax salvage value of the equipment?

King Nothing is evaluating a new 6-year project that will have
annual sales of $425,000 and costs of $293,000. The project will
require fixed assets of $525,000, which 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, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 35 percent. What is the operating cash flow for Year 3?

A company is considering a new 6-year project that will have
annual sales of $207,000 and costs of $128,000. The project will
require fixed assets of $247,000, which 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, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 34 percent. What is the operating cash flow for Year 2?

A company is considering a new 6-year project that will have
annual sales of $198,000 and costs of $122,000. The project will
require fixed assets of $241,000, which 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, 11.52
percent, and 5.76 percent, respectively. The company has a tax rate
of 34 percent. What is the operating cash flow for Year 2?
Multiple Choice
$65,892
$63,817
$76,381
$52,061
$59,599

ABC Company purchased a new machinery 4 years ago for $68,721.
Today, it is selling this equipment for $20,792. What is the
after-tax salvage value if the tax rate is 23 percent?
The MACRS allowance percentages are as follows, commencing with
year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Phil's Diner purchased some new equipment two years ago for
$118,679. Today, it is selling this equipment for $80,947. What is
the after-tax cash flow from this sale (in $) if the tax rate is 28
percent? The equipment falls in 5-year MACRS class. The MACRS
allowance percentages are as follows, commencing with year 1:
20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Phil's Diner purchased some new equipment two years ago for
$102,274. Today, it is selling this equipment for $81,604. What is
the after-tax cash flow from this sale (in $) if the tax rate is 35
percent? The equipment falls in 5-year MACRS class. The MACRS
allowance percentages are as follows, commencing with year 1:
20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

The equipment would cost $162,000 and would be classified as
five-year property for MACRS. The equipment will be sold for
$20,000 at the end of the project. Taking on the project would
require the company add $10,000 in net working capital. Variable
costs equal 67 percent of sales, fixed costs are $5,600, and the
tax rate is 21 percent. Willie's paid a consultant $500 to
determine the effect on sales over the five years if the equipment
is purchased. The...

ABC, Inc purchased some new machinery three years ago for
$270,743. Today, it is selling this machinery for $40,214. What is
the After-tax Salvage Value of the new machinery? Assume that the
tax rate is 29%. The MACRS allowance percentages are as follows,
starting with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76
percent.

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