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Pear Orchards is evaluating a new project that will require equipment of $241,000. The equipment will...

Pear Orchards is evaluating a new project that will require equipment of $241,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $61,900. However, the company plans to keep the equipment for a different project in another state. The tax rate is 35 percent. What aftertax salvage value should the company use when evaluating the current project?

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Answer #1

book value of the asset at the end of 4 years

=241000*(1-(20.00%+32.00%+19.20%+11.52%))

=41644.80

after tax salvage value should the company use when evaluating the current project

=sale value-tax deduction on gain

=61900-(61900-41644.80)*35%

=54810.68 or 54811

the above is answer..

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