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An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS...

An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS table on page 277), for tax purposes. The asset has an acquisition cost of $15,535,460 and will be sold for $5,328,631 at the end of the project. If the tax rate is 0.39, what is the aftertax salvage value of the asset (SVNOT)?

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Expert Solution

As per MACRS table ,Total Depreciation charged till year 4 (%)= 20+32+19.2+11.52 = 82.72%

Book value at end of year 4 =Cost [1-Accumulated depreciation]

                       = 15535460 [ 1- .8272]

                      = 15,535,460 * .1728

                      = 2,684,527.49

Gain /(loss) on sale =sale value -book value

                    =5,328,631 - 2,684,527.49

                     = 2,644,103.51

Tax on gain = 2644103.51 *.39 = 1,031,200.37

After tax salvage value =Sale value -Tax

                            = 5328631 -1031200.37

                            = $ 4,297,430.63 (rounded to 4297431 )

jeff jeffy answered 4 months ago
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