Question

# A company is evaluating a new 4-year project. The equipment necessary for the project will cost...

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?

 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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