Question

Allen air lines must liquidate some equipment that is being replaced. the equipment originally cost $25 million, of which 70% has been depreciated. the used equipment can be sold today for $8.75 million, and its tax rate is 35%. 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.

Answer 1

The after-tax net salvage value of the equipment is $8,312,500, calculated by determining the gain from the sale, applying the tax rate, and subtracting the taxes from the sale price.

Step-by-step explanation:

The after-tax net salvage value of Allen Air Lines' equipment can be calculated by first determining the book value of the equipment and then how much gain or loss is made on the sale. With an original cost of $25 million and 70% depreciation, the book value is $25 million - ($25 million × 70%) = $7.5 million. The sale price is $8.75 million, resulting in a gain of $8.75 million - $7.5 million = $1.25 million on the sale.

Now, we must calculate taxes on this gain. The tax on the gain is $1.25 million × 35% = $437,500. Therefore, we subtract the taxes from the sale price to find the after-tax net salvage value: $8.75 million - $437,500 = $8,312,500.

In summary, the after-tax net salvage value of the equipment is $8,312,500.

Answer 2

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