Question

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $9.6 million, of which 80% has been depreciated. The used equipment can be sold today for $3.2 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

Answer 1

Salvage value is the value that the company receives from the sale of an asset at the end of the useful life of the asset.

Computation of equipment's after-tax net salvage value:

Details	Amount $
Salvage Value (Sale value)	3,200,000
Less: Book value = 9.6M -80% depreciated = 1.92M	-1,920,000
Net Salvage Value	1,280,000
Less: Tax rate 35%	320,000
After tax salvage value	960,000

Therefore, equipment's after-tax net salvage value = $ 960,000