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Russell’s is considering purchasing $800,000 of equipment for a three-year project. The equipment falls in the...

Russell’s is considering purchasing $800,000 of equipment for a three-year project. The equipment falls in the three-year MACRS class with annual percentages of .33, .45, .15, and .07 for years 1 to 4, respectively. At the end of the project, the equipment can be sold for an estimated $46,000. The required return is 14.6 percent and the tax rate is 40 percent. What is the amount of the net proceeds from selling the equipment at the end of the project life?

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Answer #1

Book Value at the end of Year 3 = $ 56000, Tax Rate = 40 %

Sale Price = $ 46000

After-Tax Sale Proceeds = Sale Price - Tax Rate x (Sale Price - Book Value) = 46000 - 0.4 x (46000 - 56000) = $ 50000

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