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Friendly Gas Co is selling off some old equipment it no longer needs because its associated...

Friendly Gas Co is selling off some old equipment it no longer needs because its associated project has come to an end. The equipment originally cost $28,500, of which 75% has been depreciated. The firm can sell the used equipment today for $5,000, and its tax rate is 30%. What is the equipment’s after-tax salvage value for use in a capital budgeting analysis?
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Answer #1
Cost of Assets 28500
Less: Accumulated dep 21375
Book value of Assets 7125
Sale value 5000
Loss on sale 2125
Tax shield on loss @30% 637.5
After tax salvage 5637.5
(5000+637.50)
Answer is $ 5637.50
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