Question

Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $25 mil

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Answer #1

Book value as on date of sale=Cost-Accumulated Depreciation

=25*(1-0.85)=$3.75 million

Hence gain on sale=(8.75-3.75)=$5 million

After-tax salvage value=Sale proceeds-(gain on sale*Tax rate)

=8.75-(0.4*5) million

=$6,750,000

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