ation tax shield? 5. Calculating Depreciation A piece of newly purchased industrial equipment costs $745,000 and is classified as seven-vear property under MACRS. Calculate the annual depreciation allowances and end-of-the-year book values for this equipment. LO 2

Initial Equipment Cost, $M 12.0 Depreciation, % 75.00% Current Equipment Value, $M 4.0 Marginal Tax Rate 40.00%         Current Book Value, $M ? Profit/Loss On Sale, $M ? Taxes Owed (Saved) On Sale, $M ? After-Tax Net Salvage Value, $M ?

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 $6,100,000 and will be sold for $1,300,000 at the end of the project. If the tax rate is 27%, what is the after-tax salvage value of the asset? MACRS Depreciation: 2 3 4 5 6 7 8 3 year class 33.33% 44.45% 14.81% 7.41% 5 year class 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7 year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%

RR