Question

A potential new project has an expected salvage value of $300,000 and an expected book value of $200,000 at the end of its 5-year expected life. What taxes would the company own at the end of year 5 because of this project's expected salvage value of their tax rate is 40%?

Answer 1

$40,000

Step-by-step explanation:

Data provided in the question:

Salvage value = $300,000

Expected book value = $200,000

Expected life = 5 years

Tax rate = 40%

Now,

Gain over the book value = Salvage value - Expected book value

= $300,000 - $200,000

= $100,000

Taxes owed = Gain over the book value × Tax rate

= $100,000 × 0.40

= $40,000