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What is the salvage cash flow for a piece of equipment given the following information. The...

What is the salvage cash flow for a piece of equipment given the following information. The equipment had an initial book value of $209,000. The asset was set up to be depreciated straight-line for 8 years to a book value of 0. The equipment can be sold today for $62,000. Depreciation has been taken for 6 years. The firm's tax rate is 31%. (Enter your answer with a decimal point.

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Answer #1

Answer:

Cost of Equipment = $209,000
Life of Asset = 8 years
Depreciation per year = ($209,000 - $0) / 8
Depreciation per year = $26,125

Book Value at the end of 6 years = $209,000 – ($26,125 * 6)
Book Value at the end of 6 years = $52,250

After Tax Salvage Value = Salvage Value – Tax Rate * (Salvage Value – Book Value)
After Tax Salvage Value = $62,000 – 0.31 * ($62,000 - $52,250)
After Tax Salvage Value = $62,000 – 0.31 * $9,750
After Tax Salvage Value = $62,000 - $3,022.50
After Tax Salvage Value = $58,977.50

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