35. (1.0 pt.) Kaiser Co. is selling off some old equipment it no longer needs be

Question

35. (1.0 pt.) Kaiser Co. is selling off some old equipment it no longer needs because its associated project has come to an end. The equipment originally cost $22,500, of which 75% has been depreciated. The firm can sell the used equipment today for $6,000, and its tax rate is 40%. What is the equipment's after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment's final market value is less than its book value, the firm will receive a tax credit as a result of the sale. a. $5,558 b. $5,850 c. $6,143 d. $6,450 e. $6,772

Explanation / Answer

Book value as on date of sale=Cost-Accumulated depreciation

=$22500(1-0.75)=$5625

Hence gain on sale=(6000-5625)=$375

Hence after-tax salvage value=Sale proceeds-(Tax rate*gain on sale)

=6000-(375*0.4)

which is equal to

=$5850.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.