Question

Sengupta Inc. just purchased some equipment which has a depreciable life of 7 years. The equipment...

Sengupta Inc. just purchased some equipment which has a depreciable life of 7 years. The equipment cost $1,720,000 and will be used in a project with a 4 year lifespan. At the end of the project, the equipment will be sold for market value of $450,000 at the end of year 5. The equipment will be depreciated using the straight-line method. Assume the firm has a 30% marginal tax rate and the equipment will be used in a project that last 5 years. Calculate the after tax salvage value. (Round to 2 decimals)

Homework Answers

Answer #1

Solution:

Cost of equipment = $1,720,000

Depreciable life = 7 years

Annual depreciation - DLM = $1,720,000 /7 = $245,714.29

Accumulated depreciation for 5 years = $245714.29*5 = $12,28,571.42

Book value of equipment after 5 years = $1,720,000 - $1,228,571.42 = $491,428.58

Market value after 5 years = $450,000

Gain (Loss) on sale of equipment = $450,000 - $491,428.58 = ($41,428.58)

Tax saving on loss = $41,428.58 * 30% = $12,428.57

After tax salvage value = $450,000 + $12428.57 = $462,428.57

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Bricktops Inc. purchased a piece of equipment for $45,000,000 for a project that is expected to...
Bricktops Inc. purchased a piece of equipment for $45,000,000 for a project that is expected to last 8 years. Equipment will be depreciated using 10 year straight line depreciation. At the end of year 8, the company can sell the equipment for $10,000,000. The tax rate is 30%. What is the approximate after-tax salvage value of this equipment?
Power Manufacturing has equipment that it purchased 7 years ago for $2,550,000. The equipment was used...
Power Manufacturing has equipment that it purchased 7 years ago for $2,550,000. The equipment was used for a project that was intended to last for 9 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $400,000 today. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment? a.$400,000 b.$560,000 c.$466,667 d.$333,333 e.$433,333
Power Manufacturing has equipment that it purchased 4 years ago for $2,400,000. The equipment was used...
Power Manufacturing has equipment that it purchased 4 years ago for $2,400,000. The equipment was used for a project that was intended to last for 6 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $370,000 today. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment?
A machine, purchased for $60,000 had a depreciable life of 4 years. It will have an...
A machine, purchased for $60,000 had a depreciable life of 4 years. It will have an expected salvage value of $10,000 at the end of the depreciable life. What is the difference (in absolute value) in the book value at the end of year 2 between the straight line and double declining methods?  (Report your answer in dollar amounts without any extra character. Answers such as 2Million; 2M; 2,000,000 or $2000000 are not acceptable)
CheckYourSalvage Inc. purchased a piece of equipment of $630,000 for a project that will last 5...
CheckYourSalvage Inc. purchased a piece of equipment of $630,000 for a project that will last 5 years. The firm is going to depreciate this equipment using 7 year straight depreciation. At the end of year 5 it can sell the equipment for $220,000. What is the after-tax salvage value of this equipment if the tax rate is 40%?
Pera Inc. is planning to buy a piece of equipment that can be used in a...
Pera Inc. is planning to buy a piece of equipment that can be used in a 8-year project. The equipment costs $4,000,000; has a tax life of 20 years, and is depreciated using the straight-line method. The equipment can be sold at the end of 8 years for $500,000. If the marginal tax rate is 20 percent, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)?
A proposed investment has a project life of four years. The necessary equipment will cost of...
A proposed investment has a project life of four years. The necessary equipment will cost of $1,200, and have a useful life of 4 years. The cost will be depreciated straight-line to a zero salvage value, but will have a market worth $500 at the end of the project’s life. Cash sales will be $2,190 per year for four years and cash costs will run $670 per year. Fixed cost is $176 per year. The firm will also need to...
Sheridan Films is considering some new equipment whose data are shown below. The equipment has a...
Sheridan Films is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected...
1 Wayne Movies Inc.is considering some new equipment whose data are shown below. The equipment has...
1 Wayne Movies Inc.is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are...
Microsoft has just completed year 3 of the 10 year life (8 years remain) of a...
Microsoft has just completed year 3 of the 10 year life (8 years remain) of a piece of equipment it originally purchased for $750,000. It is applying straight-line depreciation to this equipment. What is the book value of this equipment at the end of year 2? Show work Boeing has just completed year 6 of the 9 year life (3 years remain) of a piece of equipment it originally purchased for $600,000. It is applying straight-line depreciation to this equipment....