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

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?

Explanation / Answer

actual value of equipment after depreciation is ( 1 - 0.75 ) * 12 = 3million

If its sold for 4 million, the profit is 1,000,000 and tax is 400,000

Hence the after tax salvage value is 4,000,000 - 400,000 = 3,600,000

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