In: Finance
You purchase equipment for $100,000 and it costs $10,000 to have it delivered and installed. Based on past information, you believe that you can sell the equipment for $17,000 when you are done with it in 6 years. The company’s marginal tax rate is 40%. What is the depreciation expense each year and the after-tax salvage in year 6 for each of the following situations?
a)Total capitalized cost = 100000 + 10000 = 110000
Depreciation expense = [cost -salvage value ]/useful life
=[110000 - 17000] /6
= 93000/6
= $ 15500 per year
b)After tax sale value = sale value [1-Tax rate]
= 17000 [1- .40]
= 17000 *.60
= 10200