Grant Publishing just undertook a project that required a $340,000 investment in NOWC, which will be recovered fully at the end of the project's life in five years. At that time, the required equipment will not be depreciated fully and still will have a book value of $100,000. The firm's tax rate is 40%. If the salvage value at the end of five years turns out to be $100,000, what ill be the project's total termination cash flow?
2) Suppose that in five years, Grant Publishing actually is able to get $140,000 for the equipment even though it has a book value of only $100,000. What is the project's terminal year cash flow now?
3) Now suppose the equipment gets sold for $30,000 in five years. What is the project's terminal year cash flow now?
1 Terminal cash flow
Salvage value of the equipment, net of tax $100,000
Terminal cash flow $440,000
Salvage of equipment, net of tax
Salvage value $100,000
Less: Book value $100,000 ...
This solution helps with a problem involving the salvage value of a project.