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    After Tax Salvage Value for Royal Dutch Petro

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    Royal Dutch Petro (RDP) is considering a new equipment purchase that would replace some existing equipment. The old equipment has a Book Value (BV) of $400 thousand and RDP estimates that the equipment could be sold for ONLY $150 thousand. What is the After Tax Salvage Value (ATSV) of the old equipment that RDP should use in their capital budgeting analysis? Assume the tax rate = T= 35%.
    a. 0, since the sale of old equipment has nothing to do with analysis of new equipment being purchased
    b. 87.5 thousand
    c. 62.5 thousand
    d. -250 thousand
    e. 237.5 thousand

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    Solution Summary

    The solution explains how to calculate the after tax salvage value to be used in the capital budgeting analysis