Question

ABC Company purchased a new machinery two years ago for $62,894. Today, it is selling this machinery for $18,852. What is the after-tax salvage value if the tax rate is 21 percent?

The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Answer 1

Cost of Machine = $62,894

Depreciation for Year 1 = 20.00% * $62,894
Depreciation for Year 1 = $12,578.80

Depreciation for Year 2 = 32.00% * $62,894
Depreciation for Year 2 = $20,126.08

Book Value of Machine = Cost of Machine - Depreciation for Year 1 - Depreciation for Year 2
Book Value of Machine = $62,894.00 - $12,578.80 - $20,126.08
Book Value of Machine = $30,189.12

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * Tax Rate
After-tax Salvage Value = $18,852.00 - ($18,852.00 - $30,189.12) * 0.21
After-tax Salvage Value = $18,852.00 + $2,380.80
After-tax Salvage Value = $21,232.80