Your firm needs a machine which costs $240,000, and requires $39,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7-year class life category. Assume a tax rate of 40% and a discount rate of 12%. If this machine can be sold for $24,000 at the end of year 7, what is the after tax salvage value

Question

Lindsey Decker

Business

12 January, 07:55

Your firm needs a machine which costs $240,000, and requires $39,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7-year class life category. Assume a tax rate of 40% and a discount rate of 12%. If this machine can be sold for $24,000 at the end of year 7, what is the after tax salvage value

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Answers (1)

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Francesca Orozco · Answer 1

The after tax salvage value would be of $18,681.6

Explanation:

In order to calculate the after tax salvage value we would have use and calculate the following formula:

After tax salvage value = selling price * (1-tax rate) + book value*tax rate

Book value = 8 year depreciation amount of 7 year MACR*purchase price

After tax salvage value = $24,000 * (1-0.4) + $240,000*4.46/100*0.4

After tax salvage value = $18,681.6

The after tax salvage value would be of $18,681.6