Power Manufacturing has equipment that it purchased 5 years ago for $2,450,000. The equipment was used...
Power Manufacturing has equipment that it purchased 5 years ago for $2,450,000. The equipment was used for a project that was intended to last for 7 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $380,000 today. The company's tax rate is 34 percent. What is the after-tax salvage value of the equipment?
Multiple Choice
$509,200
$488,800
$380,000
$271,200
Homework Answers
Annual depreciation=(Cost-Salvage value)/Useful Life
=(2,450,000/7)=$350,000/year
Hence book value as on date of sale=Cost-Accumulated Depreciation
=$2,450,000-(350,000*5)=$700,000
Hence loss on sale=(700,000-380,000)=$320,000
Hence after-tax salvage value=Sale proceeds+(loss on sale*Tax rate)
=380,000+(320,000*0.34)
=$488,800
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