Question

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $4,900,000 and will be sold for $1,450,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) Aftertax salvage value This is a numeric cell, so please enter numbers only.

Answer 1

After tax salvage value is $ 13,17,278

Sales price		a	$     14,50,000
Book Value		b	$       8,46,720
Profit on sale		c=a-b	$       6,03,280
tax on profit		d=c*22%	$       1,32,722
After tax salvage value		e=a-d	$     13,17,278
Working;
Calculation of book value at the end of four years:
Year	Cost	Depreciation rate	Depreciation expense	Accumulated Depreciation expense	Book Value at the end of year
	a	b	c=a*b	d	e=a-d
1	$       49,00,000	20.00%	$       9,80,000	$   9,80,000	$ 39,20,000
2	$       49,00,000	32.00%	$     15,68,000	$ 25,48,000	$ 23,52,000
3	$       49,00,000	19.20%	$       9,40,800	$ 34,88,800	$ 14,11,200
4	$       49,00,000	11.52%	$       5,64,480	$ 40,53,280	$   8,46,720