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A company is evaluating a new 4-year project. The equipment necessary for the project will cost...

A company is evaluating a new 4-year project. The equipment necessary for the project will cost $2,950,000 and can be sold for $660,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 35 percent. What is the aftertax salvage value of the equipment?

Multiple Choice

  • $429,000

  • $660,000

  • $488,472

  • $712,584

  • $607,416

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Answer #1

Book value as on date of sale=Cost-Accumulated Depreciation

=$2,950,000*(1-0.2-0.32-0.192-0.1152)

=$509760

Hence gain on sale=660,000-$509760=$150240

Hence after-tax salvage value=Sale proceed-(Tax rate*Gain on sale)

=660,000-(150240*0.35)

=$607416.

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