Problem 11-3

Net Salvage Value

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 85% has been depreciated. The used equipment can be sold today for $6.65 million, and its tax rate is 35%. 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.

$

Problem 11-3

Net Salvage Value

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 85% has been depreciated. The used equipment can be sold today for $6.65 million, and its tax rate is 35%. 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.

$

## Answer

##### OC2736562

Salvage value is the value that the company receives from the sale of an asset at the end of the useful life of the asset.

**Computation of equipment's after-tax net salvage value:**

Details | Amount $ |

Salvage Value (Sale value) | 6,650,000 |

Less: Book value = 19M -85% depreciated = 2.85M | -2,850,000 |

Net Salvage Value | 3,800,000 |

Less: Tax rate 35% | 1,330,000 |

After tax salvage value | 2,470,000 |

**Therefore, equipment's after-tax net salvage value = $ 2,470,000**

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