To determine the aftertax salvage value from the sale of the old machines, we first need to calculate the capital gain or loss on the sale.
The capital gain or loss is the difference between the selling price and the adjusted basis of the asset. The adjusted basis is the original cost of the asset minus any accumulated depreciation.
In this case, the original cost of the machinery is $50,000. Since the assets are classified as 5-year property for MACRS, we need to determine the accumulated depreciation over the 2 years.
MACRS depreciation for 5-year property is calculated using the double-declining balance method. The annual depreciation rate for 5-year property is 20% (100%/5 years). Since 2 years have passed, we can calculate the accumulated depreciation as follows:
Accumulated Depreciation = (Original Cost) × (Depreciation Rate) × (Number of Years)
= $50,000 × 20% × 2
= $20,000
Therefore, the adjusted basis of the machinery is $50,000 - $20,000 = $30,000.
Now, let's calculate the capital gain or loss:
Capital Gain or Loss = Selling Price - Adjusted Basis
= $15,000 - $30,000
= -$15,000
Since the capital gain is negative, indicating a loss, we can skip the taxation calculation for the capital gains tax.
Now we can calculate the aftertax salvage value:
Aftertax Salvage Value = Selling Price - Capital Gains Tax
To calculate the capital gains tax, we multiply the capital gain by the tax rate:
Capital Gains Tax = Capital Gain × Tax Rate
= (-$15,000) × 34%
= -$5,100
Therefore, the aftertax salvage value is:
Aftertax Salvage Value = $15,000 - (-$5,100)
= $20,100
So, the aftertax salvage value from this sale is $20,100.