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Consider a project with an initial asset cost of $168,000 with depreciation of that asset set as straight-line to zero over seven years. At the end of the project's 3-year life the asset can be sold for $65,000. Use a combined federal and state tax rate of 24 percent. What is the aftertax salvage value

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Answer:

$72440

Explanation:

aftertax salvage value = sales price of the machine  - tax(sales price - book value)

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

( $168,000 - 0) / 7 = $24,000

Depreciation expense each year would be $24,000

Accumulated depreciation in year 3 = $24,000 x 3 = $72,000

Book value in year 3 = $168,000 - $72,000 = $96,000

book value = 96,000

$65,000 - 0.24 x ( $65,000 -  $96,000)

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