Summer Tyme, Inc., is considering a new 3-year expansion project that requires a

Question

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $502000. The fixed asset will be depreciated straight-line to 75000 over its 3-year tax life, after which time it will have a market value of $85000. The project requires an initial investment in net working capital of $53000. The project is estimated to generate $234000 in annual sales, with costs of $158000. The tax rate is 0.28 and the required return on the project is 0.10. What is the aftertax salvage value (SVNOT) in year 3? (Make sure you enter the number with the appropriate +/- sign)

Explanation / Answer

The fixed asset will be depreciated to $75000 which means that at the end of year 3, its book value will be $75000.

Tax on profit on sale of asset = ($85000 - $75000) x 0.28 = $2800

After-tax Salvage value = $85000 - $2800 = $82200

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.