Problem 11-03 Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced....

Problem 11-03
Net Salvage Value

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $25 million, of which 85% has been depreciated. The used equipment can be sold today for $8.75 million, and its tax rate is 40%. 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.

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Expert Solution

A	Computation of Book Value
a	Original Cost	$ 25,000,000
b	Accumulated Depreciation	$ 21,250,000
	($ 250,00,000 *85%)
c	Net Book Value (a-b)	$ 3,750,000

B	Computation of Tax Amount
	Sale Price of Equipment	$ 8,750,000
	Less: Net Book Value	$ 3,750,000
	Taxable Value	$ 5,000,000
	Less: Tax @ 40%	$ 2,000,000

C	Computation of After Tax Net Salvage Value
	Sale Price of Equipment	$ 8,750,000
	Less: Taxes on Capital Gain	$ 2,000,000
	After Tax Net Salvage Value	$ 6,750,000

jeff jeffy answered 2 years ago

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