Liberty services is now at the end of the final year of a project. the equipment originally cost $22,500, of which 75% has been depreciated. the firm can sell the used equipment today for $6,000, and its tax rate is 40%. what is the equipment's after-tax salvage value for use in a capital budgeting analysis? note that if the equipment's final market value is less than its book value, the firm will receive a tax credit as a result of the sale. a. $5,558b. $5,850c. $6,143d. $6,450e. $6,772

b. $5,850

Explanation:

For computing the  after-tax salvage value , we need to do the following calculations:

1. Determine the book value:

= (Original cost of equipment) - (original cost of equipment × depreciation percentage)

= ($22,500) - ($22,500 × 75%)

= $22,500 - $16,875

= $5,625

2. Determine the profit or loss on sale of equipment:

Profit = Sale value - Book value

         = $6,000 - $5,625

         = $375

3. Determine the tax on profit on sale of equipment:

= Profit × tax rate

= $375 × 40%

= $150

4. Now finally calculation of the after-tax salvage value is shown below:

= Salvage value - profit tax

= $6,000 - $150

= $5,850

answer$22,000 ;

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