Question

Liberty Services is now at the end of the final year of a project. The equipment was purchased prior to the new tax law and originally cost $20,000, of which 75% has been depreciated. The firm can sell the used equipment today for $6,000, and its tax rate is 25%. What is the equipment's after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment's final market value is less than its book value, the firm will receive a tax credit as a result of the sale that will offset income from the company's other projects. $6,380 $4,180 $5,750 $5,335 $5,060

Answer 1

First Question :-

Given,

Cost of equipment = $ 20000

Tax rate = 25%

Market value of equipment = $ 6000

Solution :-

Cost ot equipmint 30000 Accumulatrd depreciaton Cost ot equipment X $IS000 $20000 xS 11 Book Value oft cauipment 2lost of equipment-Accumulated depreciation $30000 $15000 - $ S000 Gain E Market Value of equipment Book Value of equipment So00 $6000 lo00 Tax an Gain Tax Tate Gain 1000 x 2S $350

Now After tar Salvage Value market Value ot equipment Tax on Caun $3 50 $6000