Question

A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,000,000 and can be sold for $665,000 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 40 percent. What is the aftertax salvage value of the equipment

Answer 1

Answer:

$606,360

Explanation:

aftertax salvage value of the equipment =

Salvage value + tax ( book value -salvage value)

To derive the book value of the equipment, find the total depreciation on the equipment.

$3,000,000 - $3,000,000(0.20+ 0.32+ 0.1920 + 0.1152) = $518,400

$518,400 - $665,000 = $-146,600

$-146,600 × 0.40 = $-58640

$665,000 - 58640 = $606,360

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