P108 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 $15,480,000 and will be sold for $3,440,000 at the end of the project. Required: If the tax rate is 34 percent, what is the aftertax salvage value of the asset? O $3,179,881 $2,270,400 O $3,700,19 O $3,338,879 o $3,020,887

Solution

Total depreciation=$15,480,000(0.2+0.32+0.192+0.1152)

which is equal to =$12,805,056

Book value as on date of sales=(15,480,000-$12,805,056)=$2,674,944

Hence gain on sales=(3,440,000-2,674,944)=$765056

Hence after tax salvage value=Sale proceeds-(Tax rate*Gain on sales)

=3,440,000-(765056*34%)

which is equal to

=$3,179,881(Approx).