Question

A company is selling an equipment after four years for $37,249. The equipment was originally purchased for $88,575. The tax rate is 12%.The equipment is classified as a 5-year property. What is the after-tax salvage value?

The MACRS allowance percentages are as follows, starting with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.

Answer 1

After tax salvage value is $ 33,551.52

Step-1:Calculation of book value after 4 years
Year	Cost	Depreciation rate	Depreciation Expense	Accumulated depreciation	Book Value
	a	b	c=a*b	d	e=a-d
1	$ 37,249.00	20.00%	$      7,449.80	$      7,449.80	$ 29,799.20
2	$ 37,249.00	32.00%	$    11,919.68	$   19,369.48	$ 17,879.52
3	$ 37,249.00	19.20%	$      7,151.81	$   26,521.29	$ 10,727.71
4	$ 37,249.00	11.52%	$      4,291.08	$   30,812.37	$   6,436.63
Step-2:Calculation of after tax salvage value
Sales value		a	$    37,249.00
Book Value		b	$      6,436.63
Profit on sale		c=a-b	$    30,812.37
Tax on profit on sale		d=c*12%	$      3,697.48
After tax salvage value		e=a-d	$    33,551.52