Question

Russell’s is considering purchasing $388,000 of equipment for a four-year project. The equipment falls in the five-year MACRS class with annual percentages of .2, .32, .192, .1152, .1152, and .0576 for years 1 to 6, respectively. At the end of the project the equipment can be sold for an estimated $174,000. The required return is 14.6 percent and the tax rate is 34 percent. What is the amount of the aftertax salvage value of the equipment? Multiple Choice $114,750.21 $137,635.78 $118,804.30 $138,666.67 $143,001.29

Answer 1

Answer:

$137,635.78

Explanation:

Calculation for the amount of the after tax salvage value of the equipment

First step is to find the Book value

Book value = $388,000 ×(1 - 2. - .32 - .192 - .1152)

Book value = $67,046.40

Second step is to find the After tax salvage value

After tax salvage value = $174,000 + ($67,046.40 - 174,000)(.34)

After tax salvage value=$174,000 +(-106,953.60*.34)

After tax salvage value=$174,000 +(-$36,364.224)

After tax salvage value = $137,635.78

Therefore the amount of the after tax salvage value of the equipment will be $137,635.78