Question

Hilden Co. is considering a five-year project that will require $750,000 for new fixed assets that will be depreciated straight-line to a zero book value over 5 years. No bonus depreciation will be taken. At the end of the project, the fixed assets can be sold for $300,000. The project is expected to generate annual sales of $700,000 with costs of $350,000. The tax rate is 21 percent and the required rate of return is 12.5 percent. What is the amount of the after-tax salvage value?

Answer 1

Answer:

Given, Salvage value at the end of the project    = $ 300,000

After-tax Salvage Value                = Salvage value x ( 1 - Tax rate )                =   $ 300,000 x ( 1 -21% )                =    $ 300,000 x 0.79                =     $ 237,000

After-tax Salvage Value       =     $ 237,000