A financial analyst calculated that the after-tax salvage value for a machine was $10,200. The current book value of the asset is $12,000 and the firm's tax rate is 30%. How much could the machine be sold for today?

Question

Quizplus · Accepted Answer

The formula for calculating the after-tax salvage value is:
After-tax salvage value = Salvage value - (Salvage value - Book value) x Tax rate
We can rearrange this formula to solve for the salvage value:
Salvage value = (After-tax salvage value + (Salvage value - Book value) x Tax rate) / (1 - Tax rate)

Plugging in the given values, we get:
Salvage value = (10,200 + (12,000 - 0) x 0.3) / (1 - 0.3) = $9,428.57

Therefore, the machine could be sold for $9,428.57 today.

A Financial Analyst Calculated That the After-Tax Salvage Value for a Machine