Inputs
Example Data Table
| Purchase | Salvage | Life | Discount | Tax | Benefit | Opex | Sale Cost | NPV (with salvage) |
|---|---|---|---|---|---|---|---|---|
| $50,000.00 | $8,000.00 | 5y | 10% | 25% | $15,000.00 | $2,000.00 | $500.00 | $-344.65 |
Formula Used
- Straight-line depreciation: Depreciation = (Purchase − Salvage) ÷ Life.
- Double declining balance: Depreciation = Book Value × (2 ÷ Life), capped so Book Value never falls below Salvage.
- Tax shield: Tax Shield = Depreciation × Tax Rate.
- After-tax operating cash flow: (Benefit − Opex) × (1 − Tax Rate) + Tax Shield.
- After-tax salvage proceeds: Sale Price − (Sale Price − Book Value) × Tax Rate.
- Discount factor: DF = 1 ÷ (1 + Discount Rate)Year.
- NPV: −Purchase + Σ(PV operating cash flows) + PV(after-tax salvage).
- Impact vs zero salvage: NPV(with salvage) − NPV(zero salvage).
How to Use This Calculator
- Enter the purchase price and expected salvage value at the end of life.
- Choose the useful life, discount rate, and tax rate used for evaluation.
- Add annual benefit and annual operating cost to model operating impact.
- Select a depreciation method that matches your planning assumptions.
- Click Calculate to see NPV, impact, IRR, and schedules.
- Use the CSV or PDF downloads to share results and retain records.
Cash flow framing
This calculator values an asset as an investment: an upfront purchase, recurring after‑tax operating cash flows, and an end‑of‑life resale. Enter annual benefit and operating cost to estimate pre‑tax margin, then apply the tax rate and add the depreciation tax shield. Discounting converts each year’s cash flow to present value using your selected discount rate, allowing consistent comparison across assets and projects. It supports budgeting, procurement, and renewal decisions.
Depreciation and tax shields
Depreciation affects value through taxes, not through cash paid. Under straight‑line, annual depreciation equals (purchase minus salvage) divided by useful life. Under double‑declining balance, depreciation is accelerated early and is capped so book value never drops below salvage. The tax shield each year equals depreciation multiplied by the tax rate, increasing after‑tax cash flow when taxable income is reduced.
Salvage proceeds and disposal taxes
Salvage value is converted to after‑tax proceeds at disposal. The model subtracts sale transaction costs from salvage to estimate sale price. It then compares sale price with ending book value to determine a taxable gain or deductible loss. After‑tax salvage equals sale price minus tax on the gain (or plus the tax benefit on a loss), then is discounted back to present value.
Interpreting NPV impact and break-even
The key metric is NPV impact versus zero salvage: NPV(with salvage) minus NPV(with salvage set to zero). A positive impact means expected resale strengthens total value after taxes and discounting. A negative impact can occur when higher salvage reduces depreciable basis, lowering tax shields. The break‑even salvage shown is the approximate salvage that makes overall NPV near zero with your other inputs unchanged.
Using sensitivity and governance
Use the charts to explain drivers. The schedule plot shows annual after‑tax operating cash flow, discounted values, and book value path. The sensitivity plot varies salvage from 0 to purchase to show how NPV responds, highlighting ranges where decisions are robust. For governance, document assumptions for discount rate, useful life, and resale costs, and rerun scenarios for conservative and optimistic salvage estimates.
FAQs
It is the difference between NPV calculated with your expected salvage and NPV calculated with salvage set to zero. It isolates how resale expectations change value after taxes and discounting.
With straight-line depreciation, a higher salvage lowers depreciable basis, shrinking annual depreciation and tax shields. If the lost tax shields outweigh the added resale proceeds, NPV impact can turn negative.
Use straight-line for stable budgeting and simple planning. Use double declining balance when you expect faster early wear or want earlier depreciation benefits, while still respecting the salvage floor.
Sale price equals salvage minus sale transaction cost. Tax applies to the difference between sale price and ending book value, creating tax on a gain or a tax benefit on a loss.
Use your required return or weighted average cost of capital for the project. If uncertain, test multiple rates to see how sensitive NPV and break-even salvage are to financing assumptions.
Yes. After you run a calculation, use the CSV export for full schedules and metrics, or the PDF export for a concise, text-only summary suitable for email, approvals, or audit files.