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An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for...

An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $7,200,000 and will be sold for $1,620,000 at the end of the project.

A) What is the book value of the equipment at the end of Year 4?

B) If the tax rate is 24 percent, what is the aftertax salvage value of the asset?

Solutions

Expert Solution

A) Book value of the equipment at the end of Year 4 $ 12,44,160
Working:
Year Cost Depreciation rate Depreciation expense Accumulated Depreciation expense Ending Book Value
a b c=a*b d e=a-d
1 $       72,00,000 20.00% $       14,40,000 $ 14,40,000 $ 57,60,000
2 $       72,00,000 32.00% $       23,04,000 $ 37,44,000 $ 34,56,000
3 $       72,00,000 19.20% $       13,82,400 $ 51,26,400 $ 20,73,600
4 $       72,00,000 11.52% $          8,29,440 $ 59,55,840 $ 12,44,160
B) After tax salvage value of asset $       15,29,798
Working:
Sales value a $       16,20,000
Book Value b $       12,44,160
Profit on sale c=a-b $          3,75,840
Tax on profit d=c*24% $             90,202
After tax salvage value e=a-d $       15,29,798

jeff jeffy answered 6 months ago
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