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 $9,400,000 and will be sold for $2,840,000 at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset?

Question

Scott Cunningham

Business

25 February, 05:16

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 $9,400,000 and will be sold for $2,840,000 at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset?

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Answers (1)

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Zaid Young · Answer 1

The after-tax salvage value of the asset is $125,073.

Explanation:

Use following schedule to calculate accumulated depreciation after 4 years

Year MACRS rates Depreciation Accumulated Depreciation

1 20% $188,000 $188,000

2 32% $300,800 $488,800

3 19.20% $180,480 $669,280

4 11.52% $108,288 $777,568

Salvage Value after 4 years = Acquisition cost - Accumulated Depreciation after 4 years = $940,000 - $777,568 = $162,432

After Tax Salvage value = $162,432 x (1 - 23%) = $162,432 x (1 - 0.23) = $162,432 x 0.77 = $125,073