Your firm needs a computerized machine tool lathe which costs $50,000, requires $10,000 in installation and another $12,000 in maintenance for each year of its 3-year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 30% and a discount rate of 12%. If the lathe can be sold for $7,000 at the end of year 3, what is the after-tax salvage value?

Question

Quizplus · Accepted Answer

The after-tax salvage value is the salvage value minus the taxes on the salvage value. The salvage value is $7,000. The taxes on the salvage value are $7,000 * 0.30 = $2,100. Therefore, the after-tax salvage value is $7,000 - $2,100 = $4,900.

Your Firm Needs a Computerized Machine Tool Lathe Which Costs