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An asset used in a four-year project falls in the five-year MACRS class for tax purposes....

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,050,000 and will be sold for $1,250,000 at the end of the project. If the tax rate is 25 percent, what is the aftertax salvage value of the asset? Refer to Table 8.3. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Solutions

Expert Solution

BV4 = $6,050,000 − $6,050,000(0.2000 + 0.3200 + 0.1920 + 0.1152)

BV4 = $1,045,440

Aftertax salvage value = $1,250,000 + ($1,045,440 − $1,250,000)(0.25)

Aftertax salvage value = $1,198,860


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