Answered: what's the after-tax salvage value of…

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what's the after-tax salvage value of the equipment, in millions of dollars?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 9P

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Question

Company QuickGro just sold an old piece of equipment for $50.97 million dollars .

The company spent $95.21 millions buying the equipment 5 years ago and used a 7-year straight-line method depreciating the equipment during the past 5 years.

Suppose that the company has a 40% marginal tax rate, what's the after-tax salvage value of the equipment, in millions of dollars?

Keep two decimal points.

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

Expert Solution

Step 1

Value of Equipment after-tax is the net of sale value and cost excluding tax charges on any gain.

Salvage value is the value of the equipment at the end of its useful life or cost before disposing of the machine.

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