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An asset used in a four-year project falls in the five-year MACRS class for tax purposes....

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 $6,939,381.00 and will be sold for $1,690,535.00 at the end of the project (End of the 4th year). If the tax rate is 36.00%, what is the after-tax salvage value of the asset?

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Answer #1

Initial Investment = $6,939,381
Useful Life = 4 years

Depreciation Year 1 = 20.00% * $6,939,381
Depreciation Year 1 = $1,387,876.20

Depreciation Year 2 = 32.00% * $6,939,381
Depreciation Year 2 = $2,220,601.92

Depreciation Year 3 = 19.20% * $6,939,381
Depreciation Year 3 = $1,332,361.152

Depreciation Year 4 = 11.52% * $6,939,381
Depreciation Year 4 = $799,416.6912

Book Value at the end of Year 4 = $6,939,381 - $1,387,876.20 - $2,220,601.92 - $1,332,361.152 - $799,416.6912
Book Value at the end of Year 4 = $1,199,125.0368

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * tax rate
After-tax Salvage Value = $1,690,535 - ($1,690,535 - $1,199,125.0368) * 0.36
After-tax Salvage Value = $1,690,535 - $176,907.59
After-tax Salvage Value = $1,513,627.41

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