Your firm needs a machine which costs $270,000, and requires $42,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 21% and a discount rate of 16%. If this machine can be sold for $27,000 at the end of year 3, what is the after tax salvage value?
Multiple Choice
$15,806
$25,531.47
$6,993.00
$21,330.00
The correct answer is $ 25,531.47
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The MACRS depreciation schedule for the machine is shown in the following table
After tax salvage value = $ 27,000 - 0.21
( $ 27,000 - $ 20,007)
After tax salvage value = Selling price - Tax rate ( Selling price - Book value)
After tax salvage value = $ 25,531.47
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