Question

"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 $5,400,000 and will be sold for $1,700,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset?

Answer 1

Answer:

$1,531,286.40

Explanation:

The computation is shown below:

Given that

Acquisition cost of an asset = $5,400,000

Sale value of an asset = $1,700,000

Tax rate = 22%

So the after tax salvage value of the asset is

= $1,700,000 - ($1,700,000 - $5,400,000 × (11.52% + 5.76%)) × 22%

= $1,531,286.40

Refer to the MACRS table for the depreciation rate i.e 11.52% and 5.76%