Question

karsted air services is now in the final year of a project. the equipment originally cost $34 million, of which 100% has been depreciated. karsted can sell the used equipment today for $8 million, and its tax rate is 30%. what is the equipment's after-tax salvage value? write out your answer completely. for example, 13 million should be entered as 13,000,000. round your answer to the nearest dollar.

Answer 1

The after-tax salvage value of the equipment is $5,600,000.

Step-by-step explanation:

The after-tax salvage value of the equipment can be calculated by taking the selling price of $8 million and subtracting the taxes owed on the gain. Since the original cost of the equipment has been fully depreciated, the entire selling price will be considered gain. The taxes owed on the gain can be found by multiplying the gain by the tax rate of 30%.

Gain = Selling Price - Original Cost
Gain = $8,000,000 - $0
Gain = $8,000,000

Taxes Owed = Gain imes Tax Rate
Taxes Owed = $8,000,000 imes 0.30
Taxes Owed = $2,400,000

After-tax Salvage Value = Selling Price - Taxes Owed
After-tax Salvage Value = $8,000,000 - $2,400,000
After-tax Salvage Value = $5,600,000

Answer 2

The after-tax salvage value of Karsted Air Services' equipment is calculated by deducting the tax due on the sale from the sale proceeds, resulting in an after-tax salvage value of $5,600,000.

Step-by-step explanation:

The after-tax salvage value of the equipment for Karsted Air Services can be calculated by first considering the sale proceeds of $8 million and then adjusting for taxes. Since the equipment has been completely depreciated, the entire sale amount will be treated as a gain and, therefore, subject to tax. The tax on the sale would be $8 million multiplied by the tax rate of 30%, which equals $2.4 million. We subtract the tax from the sale proceeds to get the after-tax salvage value.

The calculation would be as follows:

Therefore, the after-tax salvage value of the equipment is $5,600,000.