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.

Solutions

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 1 year ago

Next > < Previous

Related Solutions

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $11...

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $11 million, of which 75% has been depreciated. The used equipment can be sold today for $4.4 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12.5...

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12.5 million, of which 80% has been depreciated. The used equipment can be sold today for $5 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

Equipment was purchase on April 1, 2013 with no salvage value for $308,000. It is being...

Equipment was purchase on April 1, 2013 with no salvage value for $308,000. It is being depreciated over 7 years. Prepare a straight-line depreciation shcedule and a double-declining depreciation schedule.

Net cost of new equipment: 1,000,000 life: 10 years, no salvage value, straight line depreciation Forecasted...

Net cost of new equipment: 1,000,000 life: 10 years, no salvage value, straight line depreciation Forecasted sales volume: 10,000 units per year variable costs: 60 dollars per unit fixed: 30 dollars per unit 150,000 per year Taxes are 40% and cost of capital is 14% Break even sales are said to be 8,333.3. Sales are expected to be 10,000 units and project is expected to generate net income of 30,000 per year. You are told it should be accepted. Revenue...

Problem 11-14A Net Present Value Analysis [LO11-2] Oakmont Company has an opportunity to manufacture and sell...

Problem 11-14A Net Present Value Analysis [LO11-2] Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed $ 165,000 Working capital needed $ 67,000 Overhaul of the equipment in two years $ 10,000 Salvage value of the equipment in four years $ 13,000 Annual revenues and costs: Sales revenues...

Subjects