Problem:
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $8,000,000 and will be sold for $1,840,000 at the end of the project. MACRS Table is shown below.
|
Year
|
3-Year
|
5-Year
|
7-Year
|
|
1
|
33.33%
|
20.00%
|
14.29%
|
|
2
|
44.45
|
32.00
|
24.49
|
|
3
|
14.81
|
19.20
|
17.49
|
|
4
|
7.41
|
11.52
|
12.49
|
|
5
|
|
11.52
|
8.93
|
|
6
|
|
5.76
|
8.92
|
|
7
|
|
|
8.93
|
|
8
|
|
|
4.46
|
Requirement:
Question 1: What is the book value of the equipment in Year 4?
Question 2: If the tax rate is 35 percent, what is the aftertax salvage value of the asset?
Note: Please answer in proper manner and show all computations