McPherson Company must purchase a new milling machine.The purchase price is $50,000,including installation.The machine has a tax life of 5 years,and it can be depreciated according to the following rates.The firm expects to operate the machine for 4 years and then to sell it for $12,500.If the marginal tax rate is 40%,what will the after-tax salvage value be when the machine is sold at the end of Year 4? $\begin{array}{cc}
{\text { Year }} & \text { Depreciation Rate } \
1 & 0.20 \
2 & 0.32 \
3 & 0.19 \
4 & 0.12 \
5 & 0.11 \
6 &0.06
\end{array}$
A) $8,878
B) $9,345
C) $9,837
D) $10,355
E) $10,900

Question

Quizplus · Accepted Answer

11ea42d0_c093_e525_9abf_abbeba7686d6_TB2090_00 $\begin{array}{lr}
\text { Gross sales proceeds (Market value) } & \$ 12,500 \
\text { Book value, end of Year } 4 & 8,500 \
\hline \text { Profit } & \$ 4,000 \
\hline \text { Tax on profit } \quad \text { Rate }=40 \% & 1,600 \
\text { AT salvage value }=\text { market value }+/-\text { taxes } & \$ 10,900 \
\hline
\end{array}$