An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for...

An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $12,240,000 and will be sold for $2,720,000 at the end of the project.

If the tax rate is 23 percent, what is the aftertax salvage value of the asset?

Multiple Choice

$2,580,867
$2,094,400
$2,859,133
$2,709,910
$2,451,823

Solutions

Expert Solution

Correct option is "A" -2580867

Year	MACRS 5 Year depreciation rate	cummulative rate
1	20%	20%
2	32%	20+32=52%
3	19.2%	52+19.2=71.2%
4	11.52%	71.2+11.52= 82.72%
5	11.52%
6	5.76%

Book vaue at end of year 4 =Cost [1-Cumulative depreciation rate at end of year 4]

= 12,240,000 [1-.8272]

= 12,240,000 * .1728

= $ 2115072

Gain /(loss) on sale of asset =sale value -Book value

= 2720000 - 2115072

= 604928

Tax on sale = 604928 *23%= 139133 rounded

After tax salvage value =Sale value -Tax on sale

= 2720000 -139133

= 2,580,867

jeff jeffy answered 1 year ago

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