Final answer:
The after-tax salvage value of the equipment at year 5 is $39,500. The after-tax salvage value of the equipment after 5 years is simply the salvage value, which is $50,000, as there will be no gain or loss on sale due to the salvage value equalling the book value.
Step-by-step explanation:
The after-tax salvage value of the equipment at year 5 can be calculated by first determining the book value of the equipment at year 5. The book value is the purchase price minus the accumulated depreciation. In this case, since the equipment is being depreciated using straight-line to zero depreciation, the annual depreciation expense is the purchase price divided by the expected life of the project, which is $455,000 / 5 = $91,000 per year.
Therefore, at year 5, the accumulated depreciation would be $91,000 x 5 = $455,000. The book value at year 5 would be $455,000 - $455,000 = $0.
Next, to calculate the after-tax salvage value, we need to consider the tax rate of 21%. The after-tax salvage value is the salvage value minus the tax on the gain. The gain is the salvage value minus the book value, which would be $50,000 - $0 = $50,000. Therefore, the tax on the gain would be $50,000 x 21% = $10,500.
Finally, the after-tax salvage value is the salvage value minus the tax on the gain, which would be $50,000 - $10,500 = $39,500.