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13 April, 09:48

An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for $1,560,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset? Refer to (MACRS schedule)

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  1. 13 April, 11:18
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    = $1,513,325.

    Explanation:

    Book value as on date of sale = Cost-Accumulated depreciation

    = 7,800,000 * (1-0.2-0.32-0.192-0.1152)

    = $1,347,840

    Therefore gain on sale = 1,560,000 - 1,347,840

    = $212,160

    So, after-tax salvage value = Sale proceeds - (Tax rate * Gain on sale)

    =1,560,000 - (212,160 * 0.22)

    =$1,513,325 (Approx).
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