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A delivery truck was just purchased for $80,000. It's estimated salvage value at the end of its useful life, in 8 years, is $20,000. Assume
A delivery truck was just purchased for $80,000. It's estimated salvage value at the end of its useful life, in 8 years, is $20,000. Assume 25% tax rate, and straight-line depreciation. a. What is the amount of annual depreciation? b. What is the book value after 6 years? C. Assuming the company decides to sell the truck after 6 years of service, and receives $50,000 from the sale, calculate the after-tax net cash inflow from the sale of the truck. Solution: a). Annual Depreciation =(Cost of the trucks-Salvage Value) Useful life years = ($80,000-$20,000)/8= $60,000/8 = $7,500 b) Book Value afer 6 years= Cost of Truck- Accumulated Depreciation = $80,000 - (6 * $7,500) = $80,000-$45,000 = $ 35,000 c) After tax salvage value= Salvage Value-(Tax Rate * (Salvage Value-Book Value) = $50,000 - (0.25*($50,000-$35,000)) = $50,000 -(0.25 * $ 15,000) = $50,000 - $3,750= $46,250
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