Question

Consider a $1200 investment for a new plant that is expected to have a Residual Value of $200 in five years. What is the Salvage Value at the end of year 5 if the following depreciation plan will be used

Answer 1

$173

Step-by-step explanation:

The computation of the salvage value at the end of year 5 is given below:

Cost of the asset $1,200

Multiply with the depreciation rate 5.76%

Book value at the 5 year end = $69

Resale value $200

gain on sales $131

Multiply with the Capital gain 21%

tax on gain $27

After tax gain on salvage value $173 ($200 - $27)