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

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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