P10-8 Calculating Salvage Value [LO1] An asset used in a 4-year project falls in the 5-year...
P10-8 Calculating Salvage Value [LO1]
|
An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $12,420,000 and will be sold for $2,760,000 at the end of the project. |
| Required: |
|
If the tax rate is 32 percent, what is the aftertax salvage value of the asset? |
Homework Answers
|
Year |
MACRS % |
Depreciation |
Accumulated Depreciation |
Book Value |
|
1 |
0.2 |
2484000 |
2484000 |
9936000 |
|
2 |
0.32 |
3974400 |
6458400 |
5961600 |
|
3 |
0.192 |
2384640 |
8843040 |
3576960 |
|
4 |
0.1152 |
1430784 |
10273824 |
2146176 |
After 4 year book value of the asset is $2146176.
It will be sold for 2760000
Selling price is more than book value so the company will gain on the asset sale
Gain = 2760000 – 2146176 = $613824
Tax will be levied on the asset sale
Tax = 613824* .32 = 196423.68
After tax cash flow from asset sale = 2760000 - 196423.68 = 2563576.3
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