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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

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Homework Answers

Answer #1

Well, the answer is A)

Because, we can see that,

Purchase value = $ 2,550,000

Useful years = 7

Salvage value = $ 4,00,000

Deprication = straight line

so, formula for staright line = purchase value - salvage value / useful years = 2550000 - 400000 = $ 2,150,000 / 7

= 307,142.86 is the one year depreciation

so obviously for 7 years = 307142.86 * 7 = 2,150,000

AFTER TAX SALVAGE VALUE = SALVAGE VALUE - TAX ( SALVAGE  VALUE - BOOK VALUE)

= 4,00 ,000 - 40% ( 400000 - 400000)

= 4,00,000 - 0

SO, ANSWER IS $ 4,00,000

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