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

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Finance

An asset used in a 4-year project falls in the 5-year MACRSclass (MACRS Table) for tax purposes. The asset has an acquisitioncost of $18,180,000 and will be sold for $4,040,000 at the end ofthe project.

  

Required:

If the tax rate is 33 percent, what is the aftertax salvagevalue of the asset?

Options

$3,743,496

$2,706,800

$4,336,504

$3,930,671

$3,556,322

Answer & Explanation Solved by verified expert
4.2 Ratings (811 Votes)

$3,743,496

Step-1:Calculation of book value at the end of project
Depreciation Schedule:
Year Cost Depreciation rate Depreciation Expense Accumulated depreciation Ending Book Value
a b c=a*b d e=a-d
1 $       1,81,80,000 20% $       36,36,000 $     36,36,000 $ 1,45,44,000
2 $       1,81,80,000 32% $       58,17,600 $     94,53,600 $     87,26,400
3 $       1,81,80,000 19.20% $       34,90,560 $ 1,29,44,160 $     52,35,840
4 $       1,81,80,000 11.52% $       20,94,336 $ 1,50,38,496 $     31,41,504
5 $       1,81,80,000 11.52% $       20,94,336 $ 1,71,32,832 $     10,47,168
6 $       1,81,80,000 5.76% $       10,47,168 $ 1,81,80,000 0.00
100.00% $    1,81,80,000
So, book value at the d end of year 4 is $       31,41,504
Step-2:After tax salvage value
Sales price $       40,40,000
Less
Tax on sale $ 2,96,504
After tax salvage value $       37,43,496
Working:
Sales price $       40,40,000
Book Value at the of year 4 $       31,41,504
Profit on sale $          8,98,496
Tax on sale $          2,96,504

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Transcribed Image Text

An asset used in a 4-year project falls in the 5-year MACRSclass (MACRS Table) for tax purposes. The asset has an acquisitioncost of $18,180,000 and will be sold for $4,040,000 at the end ofthe project.  Required:If the tax rate is 33 percent, what is the aftertax salvagevalue of the asset?Options$3,743,496$2,706,800$4,336,504$3,930,671$3,556,322

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