Problem:
Your firm needs a computerized machine tool lathe which costs $50,000, requires $10,000 in installation, $5,000 in freight charges and another $12,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 30% and a discount rate of 12%.
Required:
Question: If the lathe can be sold for $7,000 at the end of year 3, what is the after-tax salvage value?
- $6,499.35
- $6,344.95
- $5,999.45
- $6,554.95
Note: Show supporting computations in good form.