Mantralaya plans to manufacture swords for the next 4 years. It is classified as a 5-year MACRS (Depreciation percentages are 20.00, 32.00, 19.20, 11.52. 11.52 and 5.76 percent) and the machinery costs $215,000. At the end of 4 years, it is sold for $45,000. Mantralaya however, plans to keep the machinery for a different project in another state. What is the ATSV for this project if the tax rate is 39 percent?
Mantralaya plans to manufacture swords for the next 4 years. It is classified as a 5-year MACRS (
After Tax Salvage Value : There are three case -
1. If book value is zero
2. If book value is more than the salvage value
3. If book value is less than the salvage value
Here point number 3 is related to this question
After tax salvage value = Salvage value - [ (salvage value - book value ) * tax rate ]
Book value at the end of four year = $ 215000 [ 100 - (20+32+19.20 +11.52)]
= $ 215000 * [ 100 - 82.72 ]
= $ 215000 * 17.28 %
= $ 37152
After tax salvage value = Salvage value - [ (salvage value - book value ) * tax rate ]
= $ 45000 - [ ( $ 45000 - $ 37152) * 39% ]
= $ 45000 - [ 7848 * 39%]
= $ 45000 - $ 3060.72
= $ 41939.28
Step by step
Solved in 3 steps
