Question
The Gastineau Girls are building a factory in Massachusetts to produce furry faux fur purses. The factory costs $10 million today (year 0) and will
The Gastineau Girls are building a factory in Massachusetts to produce furry faux fur purses. The factory costs $10 million today (year 0) and will be (straight-line) depreciated to $0 over ten years (years 1-10). At the end of five years, the building will have a market value of $4 million. At the end of ten years, it will have a market value of $1 million. The corporate tax rate is 40%. What is the salvage value associated with selling the building at the end of year 5? What is the salvage value associated with selling the building at the end of year 10? (Assume that, ignoring this transaction, the Gastineau Girls fashion empire generates a taxable annual income in excess of $5 million.)
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