Marshall-Miller & Company is considering the purchase of a new machine for $50,000,installed.The machine has a tax life of 5 years.Under the new tax law,the machine is eligible for 100% bonus depreciation,so it will be fully depreciated at t = 0.The firm expects to operate the machine for 4 years and then to sell it for $21,500.If the marginal tax rate is 25%,what will the after-tax salvage value be when the machine is sold at the end of Year 4?
A) $12,551
B) $12,877
C) $12,225
D) $16,125
E) $14,833

Question

Quizplus · Accepted Answer

The after-tax salvage value is calculated as the sale price minus taxes on the gain. Since the machine is fully depreciated, the book value is $0. The gain is $21,500, and the tax on the gain is 25% of $21,500, which is $5,375. Therefore, the after-tax salvage value is $21,500 - $5,375 = $16,125.

Marshall-Miller & Company Is Considering the Purchase of a New