A company purchased an asset for $3,800,000 that will be used in a 3-year project. The asset is in the 3-year MACRS class. The depreciation percentage each year is 33.33 percent, 44.45 percent, and14.81 percent, respectively. What is the book value of the equipment at the end of the project?Multiple Choice$281,580$2,533,460$3,518,420$844,360$0

In this question, we are required to determine the book value of the equipment at the end of the project.MACRS (Modified Accelerated Cost Recovery System) rates are applied to the historical cost (purchase price) of the asset, not the book value.We will calculate Depreciation for each year using the formula:Depreciation = Asset Price × RateYear 1: $3,800,000 × 33.33% = $1,266,540Year 2: $3,800,000 × 44.45% = $1,689,100Year 3: $3,800,000 × 14.81% = $562,780Total = $1,266,540 + $1,689,100 + $562,780 = $3,518,420Book Value after 3 years = Asset Price - Total DepreciationBook Value after 3 years = $3,800,000 - $3,518,420 = $281,580Hence, we conclude that $281,580 is the correct answer to the question.

Answered: A company purchased an asset for…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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