1.a) 5 years ago, Empathy Co. purchased a lot of land to use for a warehouse, fo
ID: 2632403 • Letter: 1
Question
1.a) 5 years ago, Empathy Co. purchased a lot of land to use for a warehouse, for $1,350,673. The firm spent $342,485 to build a warehouse on the lot. The current market price of the property is $1,521,771. Now the firm wants to use the lot to build a retal location instead. What is the correct amount to use for the "initial cost" of the retail location project, for the use of the land?
1.b) Gwibber, Inc. has just sold off some of its old capital equipment for $1,224. The book value of the equipment at the time was $663. If the firm's marginal tax rate is 32 percent, what is the after-tax salvage value of the equipment?
Explanation / Answer
1(a) Cost of of land to use for a warehouse, for $1,350,673. 1350673 Construction of warehouse $342,485 342485 Total Cost of the property 1693158 Market Price of the Property 1521771 Since the market price is less than the initial total cost of the property , Empathy Co should use 1693158 as the initial cost of the retail location project. 1(b) Sales Price 1224 Book Value 663 Profit=1224-663 561 Marginal Tax @32% on 561 179.52 Salvage Value after tax=( 1224-179.52) 1044.48
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