Homework SourseP108 Calculating Salvage Value LO1 An asset used in a 4year
P10-8 Calculating Salvage Value [LO1] An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $15,300,000 and will be sold for $3,400,000 at the end of the project. Required: If the tax rate is 31 percent, what is the aftertax salvage value of the asset? O $3,165,590 O $2.346,000 $3,634,410 O $3,323,870 O $3,007.3 ![P10-8 Calculating Salvage Value [LO1] An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquis](/WebImages/1/p108-calculating-salvage-value-lo1-an-asset-used-in-a-4year-966441-1761495048-0.webp "P10-8 Calculating Salvage Value [LO1] An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquis")
Solution
As per 5 year MACRS, depreciation for 4 years = 20% + 32% + 19.20% + 11.52% = 82.72%
Asset value after project = 15300000 * (100% - 82.72%) = 2643840
Since the asset is sold at a profit, the cash flow would be reduced by the tax outgo
tax outgo = (3400000 - 2643840) * 31% = 234410
Total cash flow = 3400000 - 234410 = 3165590
