1. Your firm needs a computerized machine tool lathe which costs $43,000 and requires $11,300 in...

1. Your firm needs a computerized machine tool lathe which costs $43,000 and requires $11,300 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 13 percent.

If the lathe can be sold for $4,300 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)

Salvage value after tax

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Expert Solution

Answer:

After Tax Salvage Value = Book Value + (Market Value – Book Value) * (1- Tax Rate)
Book Value at the end of 3 years will be 7.41% of Cost of Lathe
Book Value at the end of 3 years = 7.41% of $43,000
Book Value at the end of 3 years = $3,186.30

After Tax Salvage Value = $3,186.30 + ($4,300 - $3,186.30) * (1 – 0.34)
After Tax Salvage Value = $3,186.30 + $1,113.70 * 0.66
After Tax Salvage Value = $3,186.30 + $735.04
After Tax Salvage Value = $3,921.34

jeff jeffy answered 1 year ago

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