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A company is considering a 5-year project to expand production with the purchase of a new...

A company is considering a 5-year project to expand production with the purchase of a new automated machine using the latest technology. The new machine would cost $200,000 FOB St. Louis, with a shipping cost of $8,000 to the plant location. Installation expenses of $15,000 would also be required. This new machine would be classified as 7-year property for MACRS depreciation purposes. The project engineers anticipate that this equipment could be sold for salvage for $44,000 at the end of the project. If the corporate tax rate is 28%, what is the after tax salvage cash flow for this new machine at the end of the project? (Answer to the nearest dollar.)

MACRS percentages for depreciation each year are as follows:

   Year      %

     1     14.29
     2     24.49
     3     17.49
     4     12.49
     5      8.93
     6      8.93
     7      8.93
     8      4.45

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Expert Solution

FOB cost        200,000
Freight             8,000
Installation           15,000
Depreciatiable cost        223,000
Depreciation for 5 years        173,249
WDV          49,751
Sale price           44,000
Profit/(Loss)           (5,751)
Tax-28%           (1,610)
Sale price after tax           45,610
Depreciation Year-1 Year-2 Year-3 Year-4 Year-5 Total
Cost      223,000        223,000 223,000 223,000 223,000
Dep Rate 14.29% 24.49% 17.49% 12.49% 8.93%
Deprecaition        31,867           54,613      39,003      27,853      19,914 173,249

jeff jeffy answered 2 years ago
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