Kennedy Air Services is now in the final year of a project. The equipment originally cost $22 million, of which 75% has been depreciated. Kennedy can sell the used equipment today for $5.5 million, and its tax rate is 30%. What is the equipment’s after-tax salvage value? Round your answer to the nearest cent.
Answer :
the equipment’s after-tax salvage value=$ 5,500,000
Working notes for the above answer is as under
| Particular | Amount in $ |
| Equipment Original Cost | 22,000,000 |
| Less: | |
| Depriciation (755) | 16500000 |
| Book Value | 5,500,000 |
Now we will calculate Gain on sale as follow
| Particular | Amount in $ |
| Gain on Sale | |
| Sale Price | 5,500,000 |
| Book Valu | 5,500,000 |
| Gain on Sale | 0 |
| Tax on Gain = | 0 |
| equipment’s after-tax salvage value | 5,500,000 |
