Liberty Services Is Now at the End of the Final

question 36

Multiple Choice

Liberty Services is now at the end of the final year of a project.The equipment originally cost $26,500,of which 75% has been depreciated.The firm can sell the used equipment today for $6,000,and its tax rate is 40%.What is the equipment's after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment's final market value is less than its book value,the firm will receive a tax credit as a result of the sale.

• A) $6,250
• B) $6,125
• C) $6,625
• D) $5,563
• E) $7,750

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Definitions:

Equivalent Unit

A concept in cost accounting used to compute the cost of partially completed goods, translating them into a number of fully completed units.

Assembly Department

A section of a manufacturing company where components are assembled into final products.

Costs Per Unit

The total expense involved in manufacturing or acquiring a product divided by the number of units.

Step-Down Method

An allocation method used in cost accounting to assign overhead costs to products or departments, incorporating inter-departmental services.