Posted: January 2nd, 2021
The after-tax Salvage Value is calculated as: SV – t*(SV-BV)
The above formula will work regardless of whether SV is higher or lower than the BV.
Case I: SV>BV2.The first term is SV: the company is selling the asset and receiving SV amount in return. Since, cash is coming in, SV is a positive number
The second term is -t*(SV-BV): Since the SV>BV, the asset is sold at a price higher than its current value. Therefore, the difference (SV-BV) will be taxed at the tax rate. Therefore, we have t*(SV-BV). This will give us the amount of taxes. Since taxes are paid, it is a cash outflow and therefore a minus number.
Case II: SV
Place an order in 3 easy steps. Takes less than 5 mins.