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    gbaby1212's Avatar
    gbaby1212 Posts: 1, Reputation: 1
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    #1

    Mar 2, 2011, 10:13 PM
    salvage value
    A company installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of the older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which oringinally costs $40 million, has depreciated straight-line over a tax life of 5 years, but can now be sold for $18 million. The firm's tax rate is 35%. What is the after tax cash flow from the sale of the equipment?

    I know the annual depreciation is $4.4 million. But I am not sure where to go from there. I am unsure as to how to incorporate the 3 years ago fact, as well.
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
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    #2

    Mar 7, 2011, 09:14 AM

    Your after-tax cash inflow will be the amount you receive after taxes and is the selling price of the old equipment * (1-35%). 1 is equal to 100% and 35% is your tax rate.
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