Problem:
Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 20 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent.
Required:
What is the amount of the aftertax salvage value of the equipment?
- $17,150
- $31,850
- $118,800
- $237,600
- $343,000
Note: Please show how to work it out.