Parsons Corp. purchased some machinery 2 years ago for $52,000.

The assets are classified as 5-

year property for MACRS. The company is replacing this machinery today with newer machines
that utilize the latest in technology. The old machines are being sold for $13,000 to a foreign
firm for use in its production facility in South America. What is the after tax salvage value from
this sale if the tax rate is 34 percent? Year 1 20% Year 2 32% Year 3 19.32% Year 4 11.52%
Year 5 11.52% Year 6 5.76%

Book value=52000*(1-0.20-0.32)

=24960

Tax on sale=(13000-24960)*0.34

=4066.4 tax saving

Aftre tax cash flow=$13000+4066.4

=17066.4