Blue Jay Industries is considering the purchase of a new machine.It will replace an existing but obsolete machine that will be sold for $50,000.The existing machine is 8 years old,cost $200,000,had a 10-year useful life,and is being depreciated to zero using the straight-line method.Blue Jay's income tax rate is 35%.What is the after-tax salvage value of the old machine?

Question

Quizplus · Accepted Answer

To find the after-tax salvage value of the old machine, we need to calculate the book value of the machine and subtract it from the sale price, then multiply that by the tax rate:

Book value = (Cost - Accumulated Depreciation)
Accumulated Depreciation = (Cost / Useful life) x Age of the machine
Accumulated Depreciation = (200,000 / 10) x 8 = 160,000
Book value = 200,000 - 160,000 = 40,000

Sale price - Book value = 50,000 - 40,000 = 10,000
Tax on the sale = 10,000 x 0.35 = 3,500
After-tax salvage value = 10,000 - 3,500 = 6,500

Therefore, the after-tax salvage value of the old machine is $6,500.

Since the question does not provide the cost of the new machine or any cash flows associated with it, we cannot determine the best choice(s) based on this information alone.

Blue Jay Industries Is Considering the Purchase of a New