A company is evaluating a new 4-year project. The equipment necessary for the project will cost...

A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,600,000 and can be sold for $725,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment?

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Expert Solution

$ 683,832

After tax salvage value	=	Sales Value-((Sales Value - Book Value)*Tax Rate)
	=	725000-((725000-622080)*40%)
	=	$ 6,83,832

Book Value at the end of 4 year project:

Year	Cost	Depreciation %	Depreciation	Accumulated Depreciation	Year end Book Value
	a	b	c=a*b	d	e=a-d
1	$ 36,00,000	20.00%	$ 7,20,000	$ 7,20,000	$ 28,80,000
2	$ 36,00,000	32.00%	$ 11,52,000	$ 18,72,000	$ 17,28,000
3	$ 36,00,000	19.20%	$ 6,91,200	$ 25,63,200	$ 10,36,800
4	$ 36,00,000	11.52%	$ 4,14,720	$ 29,77,920	$ 6,22,080

jeff jeffy answered 1 year ago

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