Question

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?

Answer #1

Depreciation
Schedule |
|||||

Year |
Opening
Balance |
Depreciation
Base |
Depreciaiton
% |
Depreciation |
Closing
Balance |

A |
B |
C |
D |
E = C*D |
F = B-E |

1 | 3800000 | 3800000 | 20% | 760000 | 3040000 |

2 | 3040000 | 3800000 | 32% | 1216000 | 1824000 |

3 | 1824000 | 3800000 | 19.20% | 729600 | 1094400 |

4 | 1094400 | 3800000 | 11.52% | 437760 | 656640 |

Calculation of After Tax salvage
Value of the Equipment |
|||

Particulars |
Amount |
||

Sale Value of Equipment (A) | 745000 | ||

Less: Book Value of Equipment (B) | 656640 | ||

Profit on Sale (C = A-B) | 88360 | ||

Tax @34% (D = C*34%) | 30042.4 | ||

After tax salvage value (E = A-D) | 714957.6 | ||

Therefore, after tax sale valvage value of the equipment is $714,957.60 |

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