Question:
The ‘salvage value' of equipment at the end of project life is
The ‘salvage value' of equipment at the end of project life is
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In the final year of a project's cash flow analysis, two unique positive terminal adjustments are included: the recovery of the liquid Working Capital and the cash inflow from the asset's Salvage Value.
Updated On: Jul 9, 2026
- Considered a cash inflow in final year
- Ignored in economic analysis
- Part of working capital recovery
- Added to annual depreciation
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The Correct Option is A
Solution and Explanation
Concept:
Salvage value (or scrap value) is the estimated residual value of an asset at the end of its useful life after it is decommissioned and sold for scrap or parts.
Step 1: Analyzing the cash flow impact.
At the conclusion of a project's life cycle, the plant equipment is dismantled and sold. Selling these physical assets generates a positive cash inflow for the company. This revenue is realized at the end of the project's final operating year. Therefore, in financial project evaluations, the salvage value is treated as a positive cash inflow in the final year of the cash flow spreadsheet. This matches option (1).
Step 1: Analyzing the cash flow impact.
At the conclusion of a project's life cycle, the plant equipment is dismantled and sold. Selling these physical assets generates a positive cash inflow for the company. This revenue is realized at the end of the project's final operating year. Therefore, in financial project evaluations, the salvage value is treated as a positive cash inflow in the final year of the cash flow spreadsheet. This matches option (1).
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