Calculate the tax effect on the salvage cash flow

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Reference no: EM132802779

Problem 1: The start-up costs to introduce a new project include $200,000 to buy new production equipment and $100,000 to install it. The equipment has an economic life of four years, but it will be depreciated for tax purposes at 10% p.a. The equipment is expected to have a salvage value of $55,000 after four years of use. The corporate tax rate is 30%. Calculate the tax effect on the salvage cash flow in the final year of the project.

Reference no: EM132802779

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