An asset used in a four-year project falls in the five year MACRS class for tax purposes.

Question:

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 $8,400,000 and will be sold for $1,600,000 at the end of the project. If the tax rate is 34 percent, what is the aftertax salvage value of the asset?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...