What is the after-tax present worth of the salvage price

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Reference no: EM13956363

A Canadian airline, Biggles Air, just bought a new plane for five million dollars. It’s a Class 9 asset, which means that Revenue Canada considers it to depreciate at 25% per annum. However, in reality the plane is wearing out, and losing value, at 35% per annum, and the salvage price Biggles will be able to get for it reflects this depreciation rate. Biggles’s after-tax MARR is 10% and the corporate tax rate is 40%.

What is the after-tax present worth of the salvage price Biggles Air can expect to get for the plane when they sell it in five years time, taking into account the terminal loss?

Reference no: EM13956363

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