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ABC Company purchased $50701 of equipment 4 years ago. The equipment is 7-year MACRS property. The...

ABC Company purchased $50701 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $4916. What is the After-tax Salvage Value if the tax rate is 20%?

The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

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Answer #1

Book Value after 4 years = Equipment Cost x [1 - Depreciation %]

= $50,701 x [1 - (0.1429 + 0.2449 + 0.1749 + 0.1249)]

= $50,701 x [1 - 0.6876] = $50,701 x 0.3124 = $15,838.99

After-tax Salvage Value = Salvage Value - [Tax Rate x (Salvage Value - Book Value)]

= $4,916 - [0.20 x ($4,916 - $15,838.99)]

= $4,916 - [-$2,184.60] = $7,100.60

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