our firm needs a machine which costs $100,000, and requires $25,000 in maintenance for each year...

our firm needs a machine which costs $100,000, and requires $25,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 21% and a discount rate of 14%. If this machine can be sold for $10,000 at the end of year 3, what is the after tax salvage value?

$5,854
$2,590.00
$7,900.00
$9,456.10

Expert Solution

From the MACRS table, For the year 3 the depreciation rate is 7.41%

Book value of machine= Depreciation rate * Cost of machine=7.41% * 100000= 7410

After Tax Salvage Value = salvage value + (Salvage value -Book value)*(1-Tax rate)

=10000+(10000-7410)*(1-0.21)

=10000+ 2590*0.79

After tax Salvage value = 9456.10

jeff jeffy answered 3 years ago

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