Current book value of the TIs fixed assets is 6000000 Manage

Current book value of the TI’s fixed assets is $6,000,000. Management is planning to sell these assets for $9,500,000 in four years. Total depreciation over this period will be $1,500,000. If the tax rate is 30%, what will the after-tax salvage value for the firm’s fixed assets be in four years?

Solution

Book value after 4 years = Book Value = Current Book value - Projected depreciation for 4 years

Book value = 6,000,000-1,500,000 = 4,500,000

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After-tax Salvage value = Salvage value – ((Salvage value - Book value) x Tax rate)

After-tax Salvage value = 9,500,000 - ((9,500,000 – 4,500,000) x 30%)

After-tax Salvage value = $8,000,000