An asset used in a three-year project falls in the three-year MACRS class for tax purposes.The MACRS percentage rates starting with Year 1 are: 33.33, 44.45, 14.81, and 7.41.The asset has an acquisition cost of $2.6 million and will be sold for $1.1 million at the end of the project.If the tax rate is 34 percent, what is the aftertax salvage value of the asset?

Question

Quizplus · Accepted Answer

The aftertax salvage value is calculated by subtracting the tax on the gain from the sale price. First, calculate the accumulated depreciation using MACRS rates, then find the book value at the end of the project. The gain is the sale price minus the book value. The tax on the gain is the gain multiplied by the tax rate. Subtract this tax from the sale price to get the aftertax salvage value.

An Asset Used in a Three-Year Project Falls in the Three-Year