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 $6,100,000 and will be sold for $1,300,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salvage value of the asset

Answer 1

Answer:

$1,213,928

Explanation:

The calculation is given below:

Data provided in the question

Acquisition cost of an asset = $6,100,000

Sale value of an asset at the end of the project = $1,300,000

Tax rate = 35%

Therefore the after tax salvage value of the asset is

= $1,300,000 - ($1,300,000 - $6,100,000 × (11.52% + 5.76%)) × 35%

= $1,300,000 - $86,072

= $1,213,928

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