Question

Liberty services is now at the end of the final year of project. The equipment originally cost $30000 of which 85% has depreciated. The firm can sell the used equipment today for $10000 and its tax rate is 30%. What’s the equipment after tax Salvage value for use in capital budgeting analysis

Answer 1

Asset cost	$      30,000
Less: Depreciation charged	$      25,500	=30000*85%
Book value	$         4,500
Sale value of machine	$      10,000
Profit/(Loss) on sale	$         5,500
Less: Tax payable @ 30%	$         1,650
Equipment after tax Salvage value	$        8,350