Problem 13-3 Net Salvage Value Allen Air Lines must liquidate some equipment tha
ID: 2782928 • Letter: P
Question
Problem 13-3
Net Salvage Value
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.
$
13-2: Analysis of an Expansion ProjectProblem 13-3
Net Salvage Value
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.
$
Explanation / Answer
Book value as on date of sales=$25milliion(1-0.7)=$7.5million
Hence gain on sales=(8.75-7.5)=$1.25million
Hence after tax net salvage value=Sales proceeds-(Tax rate*Gain on sales)
=8.75-(1.25*0.35)=$8,312,500