Capital Budgeting-Question-CFA Book market

bapswarrior

Hi All,
Need to know one thing which has confused me a lot.
Page 83,CFA Book Question39-44
They have taken the market value of facility at end of project as Salvage Value￠5.Why?
As salvage value is given as zero jus above that line….

robjames1984

The salvage value for book purposes is used to calculate the annual depreciation of the project. The market value at the end of the project is what they estimate they could still sell it for every though it is fully depreciated for accounting purposes. The difference between what they sell it for and what the books say it is worth is the gain on sale which you would pay taxes on.
Does that help?