Your firm needs a computerized machine tool lathe that costs $50,000 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 $6,000 at the end of year 3, what is the after-tax salvage value?
A) $3,705.00
B) $4,344.50
C) $5,499.50
D) $5,518.05

Question

Quizplus · Accepted Answer

The after-tax salvage value is the salvage value minus the tax on the salvage value. The salvage value is $6,000. The tax on the salvage value is $6,000 * 21% = $1,260. The after-tax salvage value is $6,000 - $1,260 = $4,740.

Your Firm Needs a Computerized Machine Tool Lathe That Costs