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.