Answer:
After-tax salvage value = $240,000
Explanation:
This can be calculated as follows:
Tax rate = 40%
Purchase price = $450,000
Annual depreciation expense = Purchase price / Number of usable life = $450,000 / 9 = $50,000
Accumulated depreciation after year 3 = Annual depreciation expense * 3 = $50,000 * 3 = $150,000
Remaining book value in 3 years = Purchase price - Accumulated depreciation after year 3 = $450,000 - $150,000 = $300,000
Salvage value in 3 years = Estimated sales price in 3 years = $200,000
Since the Net book value in 3 years of $300,000 is greater than the Salvage value in 3 years of $200,000, that means there is a tax saving. Therefore, the the after-tax salvage value at the time the containers will get sold can be calculated using the following formula:
After-tax salvage value = Salvage value + (Tax rate * (Remaining book value - Salvage value)) = $200,000 + (40% * ($300,000 - $200,000)) = $240,000
