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The owners of Egg Sauce, Ltd. Are tired of their business. In fact, they are so exhausted that they are considering abandoning the business.

The owners of Egg Sauce, Ltd. Are tired of their business. In fact, they are so exhausted that they are considering abandoning the business. The building and land can be sold for $700,000 and would provide and after-tax amount of $640,000. The equipment could be sold at auction for about $55,000, and at that price, they could claim a tax credit of $5,000 in addition. The building needed renovation about every 10 years, the before-tax EAC (equivalent annual cost) of this periodic maintenance is $40,000, and the after-tax EAC, including the effect of depreciation is $30,000. The annual revenues minus expenses (including all employee costs) from running Egg Sauce are $200,000 per year, and the firm pays taxes at the rate of 35% on this amount. The owners have determined that the required rate of return on this investment is 15%.

a. At what after-tax sale price would the owners be better off selling than abandoning Egg Sauce?

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Answer.xlsx

Particulars
Annual revenues pre tax
Less - tax
Annual revenues post tax
Minimum selling price after tax where
owners would be better off selling than
abondoning Egg sauce Amount
200,000
70,000...

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