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Problem:

Your firm is contemplating the purchase of a new $672,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $55,000 at the end of that time. You will save $175,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $50,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.

Required:

Question: What is the aftertax salvage value of the equipment?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167687

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