Reference no: EM132771172

Swedish Medical is evaluating the purchase of a new diagnostic equipment, which costs $1,200,000, has an expected life of five years, and an estimated pretax salvage value of $400,000. It is expected to generate $600,000 in its first year of use. In the same year operating expenses without depreciation are expected to be $270,000. The hospital's tax rate is 25 percent.

The equipment falls into the MACRS five-year class for tax depreciation, given in the following table:

Year         Allowance

1                 0.20

2                0.32

3                 0.19

4                0.12

5                 0.11

6                0.06

Problem 1: What is the after-tax salvage value of the equipment in Year 5?