Question

Concord, Inc. purchased an equipment three years ago at a cost of $442,000. The equipment is...

Concord, Inc. purchased an equipment three years ago at a cost of $442,000. The equipment is being

depreciated using the straight-line method over six years. The tax rate is 25 percent and the discount rate is

12 percent. If the equipment is sold today for $225,000, what will the aftertax salvage value be?

A. $161,000 B. $178,000 C. $193,000 D. $211,000 E. $224,000

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Answer #1

Answer:

Correct answer is:

E. $224,000

Explanation:

Purchase cost of equipment three years ago = $442,000

Depreciated per year using the straight-line method over six years = 442000 / 6 = $73,666.67

Book value today = 442000 - 3 * 73666.67 = $221,000

Sale value today =$225,000

Tax on Gain = (225000 - 221000) * 25% = $1000

After tax salvage value = Sale value - Tax on gain = 225000 - 1000 = $224,000

As such option E is correct and other options A, B, C and D are incorrect.

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