When calculating the net cash flow in a project\'s expected final year, a. recov

Question

When calculating the net cash flow in a project's expected final year,

a. recovery of any working capital invested is disregarded

b. the after-tax salvage value of any project equipment is considered

c. the remaining principal on any borrowed funds is considered

d. the sales proceeds from any land associated with the project is disregarded

a. recovery of any working capital invested is disregarded

b. the after-tax salvage value of any project equipment is considered

c. the remaining principal on any borrowed funds is considered

d. the sales proceeds from any land associated with the project is disregarded

Explanation / Answer

Hi,

Option B (the after-tax salvage value of any project equipment is considered) is the correct answer.

Explanation:

After Tax Salvage Value is derived by adding sales value of the equipment to tax savings arising from loss on sale of equipment or by deducting tax on gain arising from sale of asset. It is to be considered if the asset is sold in its final year of operation, since such a sale would generally take place after the asset has been completely used.

Thanks

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