Your firm needs a computerized machine tool lathe that costs $50,000, requires $10,000 in installation, and another $12,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 21 percent and a discount rate of 12 percent. If the lathe can be sold for $7,000 at the end of year 3, what is the after-tax salvage value?
A) $6,463.66
B) $4,446.00
C) $5,927.20
D) $6,154.20

Question

Quizplus · Accepted Answer

The after-tax salvage value is the salvage value minus the tax on the salvage value. The salvage value is $7,000. The tax on the salvage value is $7,000 * 21% = $1,470. Therefore, the after-tax salvage value is $7,000 - $1,470 = $5,530.

Your Firm Needs a Computerized Machine Tool Lathe That Costs