Calculate the depreciation-why is salvage value considered

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Reference no: EM131819722

Dog Up! Franks is looking at a new sausage system with an installed cost of $530,400. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for $81,600. The sausage system will save the firm $163,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $38,080.

To calculate the Depreciation, why do you NOT include the 81,600 as the Salvage value? Why is the salvage value considered 0? Isn't the salvage value, the amount of the project after its life, therefore, making it the same as the Market Value? There are some cases in which the market value and the salvage value are the same, I just want to understand how could I tell the difference when they're the same and when they are different.

Reference no: EM131819722

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