Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced

Finance Dec 09, 2020

Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $9 million, of which 80% has been depreciated. The used equipment can be sold today for $3 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.

Expert Solution

Equipment cost 9000000

Depreciation provided till date is 80% = 9000000*80% =7200000

Book value = Cost - accumulated Depreciation

=9000000-7200000

=1800000

Salvage value= 3000000

Capital gain = Sale Value- Book value

=3000000-1800000

=1200000

Tax @25% of capital gain= 1200000*25% = 300000

Aftertax salvage value formula = Salvage Value - tax paid on capital gain

=3000000-300000

=2700000

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