Question

Your firm needs a computerized machine tool lathe which costs $41,000 and requires $11,100 in maintenance for each year of its 3-year life. After three years this machine will be replaced. The machine falls into the MACRS 3-year class life category and neither bonus depreciation nor Section 179 expensing can be used. Assume a tac rate of 21 percent and a discount rate of 11 percent.

If the lathe can be sold for $4,100 at the end of year 3 what is the after tax salvage value?

Answer 1

rate positively ..

		Computation of after tax salvage value
		MARCS depreciation table as below
		Year	3-Year
		1	33.33%
		2	44.45%
		3	14.81%
		4	7.41%
		Book value at year 3 =
		Cost * depreciation rate for 4th year
		41000*7.41%	3038.10
i		Sales price =	4100
ii	Less	Book value =	3038.10
iii=i-ii		Gain on sale	1061.90
iv=iii*21		Tax on gain @ 21%	222.999
v=i-iv		Post tax salvage value=	3877.0
		ans =	3877.0