Question

In: Finance

You purchase equipment for $100,000 and it costs $10,000 to have it delivered and installed. Based...

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?

Solutions

Expert Solution

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


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