Question

As asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,400,000 and will be sold for $1,530,000 at the end of the project. If the tax rate is 34 percent, what is the after tax salvage value of the asset?

Answer 1

Answer:

The after tax salvage value of the asset is $165.000.

Explanation:

If the asset has a depreciation period of 5 years it means that still there is a depreciation´s remanent of $ 1.280.000, if the asset it's sold at $1.530.000 at the end of the project, then the salvage value before taxes it's $250.000 consequently the after tax salvage value of the asset it's $ 165.000.

When company's asset it's for sale if there is yet a remanent value of depreciation it's the cost of sale of the transaction, if the depreciation it's zero then the sale it's a all gain to the company.

Please see details below:

Value of the Asset : $6.400.000

Anual Depreciation: $.1.280.000

Value of Sale:  $1.530.000

Cost of Sale : $1.280.000

Revenue : $250.000

Tax Rate:  - $85.000

Salvage value: $165.000