Question

A company purchases equipment for $31 million. The company plans to use the equipment for 4 years, then sell the equipment on the secondary market.

Assume that in 4 years, the company:

• Can sell the equipment for $14.5 million
• Has a corporate tax rate of 32%
• Will have depreciated 77% of the equipments value

What is the equipment's after-tax salvage value (in 4 years)?

Enter your answer as a number no decimal places and with no dollar signs or commas.

Enter your answer as a full value (not in millions).

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

L2U B Purchase cost of Equipment 31000000 | Accumulated depreciation in 4 years (77%) 23870000 Book value of Equipment at end of 4th year 7130000 Market value of Equipment at end of 4th year 14500000 Gain on Sale 7370000 Tax on Gain (32%) 2358400 After tax Salvage value 12141600

Cell reference -

L2U B Purchase cost of Equipment 31000000 Accumulated depreciation in 4 years (77%) =C2*0.77 Book value of Equipment at end of 4th year =C2-C4 Market value of Equipment at end of 4th year 14500000 Gain on Sale =C8-C6 Tax on Gain (32%) =C10*0.32 After tax Salvage value =C8-C12

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.