Question

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,110,000 and will be sold for $1,310,000 at the end of the project. If the tax rate is 21 percent, what is the aftertax salvage value of the asset? Refer to Table 8.3. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Answer 1

Solution :

Calculation of Aftertax Salvage Value :

Book value on purchase		$ 6,110,000
Less : Accumulated depreciation	6,110,000 * ( 0.2 + 0.32 + 0.192 + 0.1152 )	$ 5,054,192
Book value on sale		$ 1,055,808
Salvage value of plant		$ 1,310,000
Book value on date of sale		$ 1,055,808
Gain on disposal		$ 254,192
Tax on gain on disposal	( 254,192 * 21% )	$ 53,380.32
Aftertax Salvage value	( 1,310,000 - 53,380.32 )	$ 1,256,619.68