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In: Finance

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 $22,437,430 and will be sold for $5,064,805 at the end of the project. If the tax rate is 0.39, what is the aftertax salvage value of the asset (SVNOT)?

Solutions

Expert Solution

After tax salvage value of asset = Sales value - ((Sales value - Book Value)*Tax Rate)
= 5064805-((5064805-3877188)*0.39)
= $       46,01,634
Working:
MACRS schedule:
Year Cost Depreciation rate Depreciation expense Accumulated Depreciation expense Ending Book Value
a b c=a*b d e=a-d
1 $       2,24,37,430 20.00% $       44,87,486 $     44,87,486 $ 1,79,49,944
2 $       2,24,37,430 32.00% $       71,79,978 $ 1,16,67,464 $ 1,07,69,966
3 $       2,24,37,430 19.20% $       43,07,987 $ 1,59,75,450 $     64,61,980
4 $       2,24,37,430 11.52% $       25,84,792 $ 1,85,60,242 $     38,77,188

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