Question

Karsted Air Services is now in the final year of a project. The equipment originally cost $32 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $10 million, and its tax rate is 30%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.

$

Answer 1

The Machine Has been Depreciated completely.

So Book Value of The Machine = 0

Current Sales Value of The Machine = $10 million = 10,000,000

Taxable Value = Sales Value -  Book Value = 10,000,000 - 0 =  10,000,000

Tax Payable = Taxable Value * Tax Rate = 10,000,000 *  30% = 3,000,000

After-Tax Salvage Value = Current Sales Value of The Machine - Tax Payable

= 10,000,000 - 3,000,000 = 7,000,000

Ans : equipment's after-tax salvage value = $ 7,000,000 (Ans)