# A group of businessmen formed a corporation to lease for 5 years a piece of land at the intersection of two busy streets. The corporation has invested \$50,000 in car-washing equipment. They will depreciate the equipment by sum-of-years'-digits depreciation, assuming a \$5000 salvage value at the end of the 5 year useful life. The corporation is expected to have a

A group of businessmen formed a corporation to lease for 5 years a piece of land at the intersection of two busy streets. The corporation has invested \$50,000 in car-washing equipment. They will depreciate the equipment by sum-of-years'-digits depreciation, assuming a \$5000 salvage value at the end of the 5 year useful life. The corporation is expected to have a before-tax cash flow, after meeting all expenses of operation (except depreciation), of \$20,000 the first year, declining \$3000 per year in future years (second year = \$17,000, third year = \$14,000, etc.). The corporation has other income, so it is taxed at a combined corporate tax rate of 20%. If the projected income is correct, and the equipment can be sold for \$50oo.at the end of 5 years, what after-tax rate of return would the corporation receive from this venture? (Answer: 14%)
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...