Salvage Value
Short definition
Salvage is the net cash from selling (or the cost of dismantling) the asset at the end of the project life. It is the last NPV cash flow — after tax, not book value.
Detailed explanation
A sale above tax book triggers tax; below it, a usable loss may create a tax saving. Decommissioning, environmental spend and collateral release are negative salvage.
In inflation, historic tax book is low and sale prices are high; tax on the gain is not symmetric with the original shield. An abandon option turns salvage into option value; mandatory dismantling is negative salvage.
Why it matters for the CFO
Omitting salvage understates NPV; writing a pre-tax sale price overstates it.
How it is calculated
Hurda nakdi ≈ satış fiyatı − vergi × (satış − vergi defteri)
Cash sale plus or minus tax on the gap to tax book. Dismantling is a separate negative CF.
Variables in the formula
- Satış: end-of-life net sale price
- Vergi defteri: tax written-down value
How to read it
Salvage is not a Gordon “perpetual EBITDA” terminal; it is exit cash on one asset. Do not mix it with a DCF terminal value.
Numerical example
Machine sold in year 8 for 4 mn TL, tax book 1 mn TL, corporate tax 25%: tax = 0.75 mn TL; salvage cash = 3.25 mn TL.
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Definitions are educational. They are not investment, credit or tax advice.