Question

Problem 11-03 Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $18 million, of which 85% has been depreciated. The used equipment can be sold today for $3.6 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000

Answer 1

The original cost of the equipment 18 million Total depreciation = 0.85* 18000000 15,300,000.00 Book value of the Equipment = 18000000 - 15300000 2,700,000.00 Tax rate is 40% If the equipment is sold for 3.6 million, then tax has to be paid on the gain So tax paid (3600000-2700000) *0.4 360,000.00 After tax salvage value is 3600000-360000 3,240,000.00