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Question

Click here to read the eBook: Analysis of an Expansion Project Problem Walk-Through AFTER TAX SALVAGE VALUE Karsted Air Services is now in the which 90% has been depreciated. Karsted can sell the used equipment today for $5.5 million, and its tax rate is 40% what is the equipment's after-tax salvage value? Round your answer to the nearest dollar write out your answer completely. For example, 13 million should be entered as 13,000,000 final year of a project. The equipment originally cost $22 million, of

Explanation / Answer

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

=$22million(1-0.9)

=$2.2million

Hence gain on sale=(5.5-2.2)=$3.3million

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

=$5.5-($3.3*0.40)

which is equal to

=$4,180,000.

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