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An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $4,700,000 and will be sold for $1,350,000 at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset

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ayokenny2001

Answer:

$1,216,858

Explanation:

Acquisition cost of an asset = $4,700,000

Salvage value of an asset = $1,350,000

Tax rate = 23%

The after tax salvage value of the asset is

= $1,350,000 - ($1,350,000 - $4,700,000) × (11.52% + 5.76%) × 23%

= $1,350,000 - $3,350,000 × (0.1152 + 0.0576) × 0.23

= $1,350,000 - $133,142

= $1,216,858

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