Solution-Compute the after tax salvage value of the

Compute the after tax salvage value of the equipment

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Reference no: EM132837104

Question - A new product is being considered by Stanton Corp. Anoutlay of $40,000 is required for equipment and an additional net working capital investment of $1000 is required. The project is expected to have a 4 year life and the equipment will be depreciated on a straight line basis (equal annual amount) to a $4,000 book value.

Producing the new product will reduce current manufacturing expenses by $5,000 annually and increase earnings (revenue) before depreciation and taxes by $6,000 annually.

Marginal tax rate is 40 percent. The equipment will have a market salvage value of $10,000 at the end of 4 years.

Assuming the equipment is sold for the expected $10,000 market salvage value at the end of its 4 year life, compute the after tax salvage value of the equipment.

A. 4,000

B. 6,000

C. 7,600

D. 10,000

Reference no: EM132837104

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Compute the after tax salvage value of the equipment

Reference no: EM132837104

Reference no: EM132837104

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