Question
In: Finance
Marshall-Miller & Company is considering the purchase of a new machine for $60,000, installed. The machine...
- Marshall-Miller & Company is considering the purchase of a new machine for $60,000, installed. The machine has a tax life of 5 years, and it can be depreciated according to the depreciation rates below. The firm expects to operate the machine for 5 years and then to sell it for $18,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 5?
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
|
|
MACRS % |
20% |
32% |
19% |
12% |
11% |
6% |
|
Depreciation expense |
7,200 |
|||||
|
Book value |
48,000 |
3,600 |
$0 |
If we sell at the end of year 5 for $18,500 then determine if we have a gain or a loss and the appropriate tax consequence
Explain answer and how to figure on financial calculator please
Solutions
Expert Solution
There is a gain of $14,900 .
The gain is simply the difference between selling price and book value at the time of sale.
Hence Gain = 18500-3600 = 14900 at the end of year 5
Tax =Tax rate*Capital gain
= 40%*14900 = 5960
After tax salvage = selling price- tax
= 18500-5960 = $ 12540
WORKINGS
| Purchase cost | 60000 |
| Less: Depreciation | |
| Year 1 | 12000 |
| Year 2 | 19200 |
| Year 3 | 11400 |
| Year 4 | 7200 |
| Year 5 | 6600 |
| Book value | 3600 |
| Selling price | 18500 |
| Gain | 14900 |
CALCULATION METHOD:
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