Question

You purchase equipment for $388,915. This cost will be depreciated straight-line to zero over the project’s...

You purchase equipment for $388,915. This cost will be depreciated straight-line to zero over the project’s 9-year life. Based on past information, you believe that you can sell the equipment for $41,592 when you are done with it in 9 years. The company’s marginal tax rate is 21%.

Calculate the after-tax salvage value.

Round your answer to 2 decimal places (e.g. 125.74632 = 125.75).

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Homework Answers

Answer #1

Depreciation per year = Purchase price/Life of the equipment

Depreciation per year = 388,915/9

Depreciation per year = $43,212.7777777778

Book value at the end of 9 years = Purchase price - Depreciation per year * Life of the equipment

Book value at the end of 9 years = 388,915 - 43,212.7777777778 * 9

Book value at the end of 9 years = 0

After-tax Salvage value = (Selling price - Book value at the end of 9 years) * (1 - tax rate)

After-tax Salvage value = (41,592 - 0) * (1 - 0.21)

After-tax Salvage value = 41,592 * 0.79

After-tax Salvage value = $32,857.68

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