An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for...

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An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for...

An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $18,720,000 and will be sold for $4,160,000 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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Answer 1

Answer #1

Step-1:Calculation of book value at the end of 4 years

Year	Cost	Depreciation rate	Depreciation expense	Accumulated Depreciation expense	Book Value
	a	b	c=a*b	d	e=a-d
1	$ 1,87,20,000.00	20.00%	$ 37,44,000.00	$ 37,44,000.00	$ 1,49,76,000.00
2	$ 1,87,20,000.00	32.00%	$ 59,90,400.00	$ 97,34,400.00	$ 89,85,600.00
3	$ 1,87,20,000.00	19.20%	$ 35,94,240.00	$ 1,33,28,640.00	$ 53,91,360.00
4	$ 1,87,20,000.00	11.52%	$ 21,56,544.00	$ 1,54,85,184.00	$ 32,34,816.00

Step-2:Calculation of after tax savage value of the asset

	After tax salvage value	=	Sales Value - ((Sale Value - Book Value)*23%)
		=	4160000-((4160000-3234816)*23%)
		=	$ 39,47,207.68

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Answer 2

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