Question

Marshall-Miller & Company is considering the purchase of a new machine for $50,000, installed. The machine has a tax life of 5 years, and it can be depredated according to the depreciation rates below. The firm expects to operate the machine for 3 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 3?

Problem 6 Marshall-Miller & Company is considering the purchase of a new machine for $50,00o, installed. The machine has a tax life of 5 years, and it can be depredated according to the depreciation rates below. The firm expects to operate the machine for 3 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 3? Appropriate MACRS percentages for a 5-year asset are Year 3.19 Year 1.20 Year 4.12 Year 2 .32 Year 5.11 Year 6 .06

Answer 1

6)

Asset cost Less: Depreciation charged Book value 50,000 35,500 14,500 =50000*(0.2+0.32+0.19) $ Sale value of machine Profit/(Loss) on sale Less: Tax payable@40% 12,500 (2,000) (800) After tax salvage value $ 13,300

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