Question

QUESTION 17 Marshall-Miller & Company is considering the purchase of a new machine for $51,864, installed. The machine has a tax life of 5 years (MACRS), and it can be depreciated according to the depreciation rates below. The firm expects to operate the machine for 4 years and then to sell it for $17,826. If the marginal tax rate is 21%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? Year Depreciation Rate 0.20 0.32 0.19 0.12 0.11 0.06

Answer 1

Ans:-

L10 A B C D Years au wn Machine costs Depreciation rates Annual Depreciation Book Value at year end 51864 0.20 10372.80 41491.20 51864 0.32 16596.48 24894.72 51864 0.19 9854.16 15040.56 51864 0.12 6223.68 8816.88 51864 5705.04 3111.84 51864 0.06 3111.84 0.00 0.11

L10 А 2 Years Machine costs Depreciation rates Annual Depreciation Book Value at year end 1 51864 0.2 =D4*E4 =D4-F4 51864 0.32 =D5*E5 =D5-SUM(F4:F5) 3 51864 0.19 =D6*E6 =D6-SUM(F4:F6) 51864 =D7*E7 =D7-SUM(F4:F7) 5 51864 0.11 =D8*E8 =D8-SUM(F4:F8) 6 51864 0.06 =D9*E9 =D9-SUM(F4:F9) 0.12
After-tax salvage value is given by Market Value +( Book Value - Market Value) * Tax rate

Market value at the end of 4th year is $17,826 and Book Value at the end of 4th year is $8816.88. The tax rate is 21% i.e 0.21

Now After-tax salvage value = $17,826 + ( $8,816.88 - $17,826) * 0.21 = $15,934.08.

Therefore the After-tax salvage value of Machine at the end of year 4 will be $15,934.08