Littau Inc. has provided the following data concerning an investment project that has been proposed: The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 7 years without any reduction for salvage value. The company uses a discount rate of 19%.
-When computing the net present value of the project, what is the after-tax cash flow from the salvage value in the final year?
A) $0
B) $3,000
C) $10,000
D) $7,000

Question

Littau Inc. has provided the following data concerning an investment project that has been proposed:  The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 7 years without any reduction for salvage value. The company uses a discount rate of 19%.
-When computing the net present value of the project, what is the after-tax cash flow from the salvage value in the final year?
A) $0 
B) $3,000 
C) $10,000 
D) $7,000

Quizplus · Accepted Answer

The after-tax cash flow from the salvage value is calculated by taking the salvage value and subtracting any taxes owed on it. If the salvage value is $10,000 and the tax rate is 30%, the after-tax cash flow would be $10,000 - ($10,000 * 0.30) = $7,000.