Allen Air Lines must liquidate some equipment that is being replaced. The equipm

Question

Allen Air Lines must liquidate some equipment that is   being replaced. The equipment originally cost $12 million, of which 75% has   been depreciated. The used equipment can be sold today for $4 million, and its tax   rate is 40%. What is the equipment%u2019s after-tax net salvage   value? Allen Air Lines must liquidate some equipment that is   being replaced. The equipment originally cost $12 million, of which 75% has   been depreciated. The used equipment can be sold today for $4 million, and its tax   rate is 40%. What is the equipment%u2019s after-tax net salvage   value?

Explanation / Answer

Allen Air Lines must liquidate some equipment that is   being replaced. The equipment    
originally cost $12 million, of which 75% has   been depreciated. The used equipment can
be sold today for $4 million, and its tax   rate is 40%. What is the equipment's after-tax net
salvage value?

Net Value = $12 * 25% =$12*1/4 = $3 million
Net gain will be = $4 - $3 = $1 million

net salvage Value will be = $3 + $1 * (1 - 40%) = $3.6 million is answer.

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