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AFTER TAX SALVAGE VALUE Karsted Air Services is now in the final year of a project....

AFTER TAX SALVAGE VALUE

Karsted Air Services is now in the final year of a project. The equipment originally cost $26 million, of which 90% has been depreciated. Karsted can sell the used equipment today for $6.5 million, and its tax rate is 35%. What is the equipment's after-tax salvage value? Round your answer to the nearest dollar. Write out your answer completely. For example, 13 million should be entered as 13,000,000.

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Expert Solution

Answer - After tax salvage value = $5,135,000

Reason -

Book value of Asset after depreciation = $26 million * 10% = $2.6 million

Value of equipment today = $6.5 million

So net gain on sale = $6.5 million - $2.6 million = $3.9 million

Tax on Net gain = $3.9 million * 35% = 1.365 million.

So After tax salvage value = $6.5 million - 1.365 million = 5.135 million or $5,135,000

jeff jeffy answered 2 years ago
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