Question

ABC Company is considering the purchase of a new machine for $85,000 installed. The machine will be depreciated by MACRS as 5 year property. The firm expects to operate the machine for 4 years and then to sell it for $12,250. If the marginal tax rate is 20.00%, what will the after–tax salvage value be when the machine is sold at the end of Year 4? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

Cost of machine				85000
Accumulated dep for 4 yrs
(20+32+19.20+11.52)% *85000				70312
Book value of Machine				14688
Sale value of machine at end of 4th yr				12250
Loss on sale of Machine				2438
Tax shield on loss @ 20%				487.6
After Tax salvage (12250+487.60)				12737.6