An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for $1,560,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule)

Question

Kenya Allen

Business

28 October, 17:50

An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for $1,560,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule)

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Shasta · Answer 1

= $1,513,325.

Explanation:

Book value as on date of sale = Cost-Accumulated depreciation

= 7,800,000 * (1-0.2-0.32-0.192-0.1152)

= $1,347,840

Therefore gain on sale = 1,560,000 - 1,347,840

= $212,160

So, after-tax salvage value = Sale proceeds - (Tax rate * Gain on sale)

=1,560,000 - (212,160 * 0.22)

=$1,513,325 (Approx).