Question

Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $22 million, of which 75% has been depreciated. The used equipment can be sold today for $6.6 million, and its tax rate is 35%. What is the equipment's after-tax net salvage value? Write out your answer completely.

Answer 1

$5,885,000

Step-by-step explanation:

The formula for after tax salvage value is as follows;

AT Salvage value = Salvage - [(salvage - Book value )*(1-tax)]

Salvage = $6,600,000

Book value as of today = 22,000,000 *(1-0.75)

Book value = $5,500,000

tax = 35% or 0.35 as a decimal

Next, plug in the numbers to the AT Salvage value formula;

AT Salvage value = $6,600,000 - [($6,600,000 - $5,500,000)(1-0.35)]

= $6,600,000 - $715,000

= $5,885,000