Question

Karsted Air Services is now in the final year of a project. The equipment originally cost...

Karsted Air Services is now in the final year of a project. The equipment originally cost $20 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $8 million, and its tax rate is 20%. 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.

$  

Homework Answers

Answer #1

Solution :

Statement showing calculation of After Tax salvage value of the Equipment:

Sl.No.

Particulars

Amount

1.

Sale value of the Equipment

$ 8,000,000

2.

Less : Book value of the Equipment

( Since the Equipment has been depreciated a 100 %, Book value is equal to zero )

$ 0

3.

Profit on sale of Equipment = (1) – (2)

$ 8,000,000

4.

Tax Rate

20 %

5.

Tax payable on profit on sale of Equipment

= ( $ 8,000,000 * 0.20 ) = (3) * (4)

$ 1,600,000

6.

After Tax salvage value

= Sale value of Equipment - Tax payable on profit on sale of Equipment

= $ 8,000,000 - $ 1,600,000

= (1) - (5 )

$ 6,400,000

Thus the After tax salvage value of the Equipment is = $ 6,400,000

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