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Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced
Net Salvage Value
Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $17 million, of which 80% has been depreciated. The used equipment can be sold today for $5.1 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
$ ________________
Expert Solution
Statement showing computation:
After tax salvage value= Salvage value- Tax*(salvage value-book value)
Salvage value= $5.1 million
Book value= 17*(1-0.80)= 3.4 million
Tax= 40%
After tax salvage value= 5.1-0.40*(5.1-3.4)
After tax salvage value= 5.1-0.68= 4.42 million
After tax salvage value= $4420000
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