The salvage value of a plant is best described as:

• A. The fixed capital investment of the plant at the start
• B. The annual depreciation expense
• C. The fixed capital investment minus land value, evaluated at the end of the plant life
• D. The market resale value of the equipment

Answer: (C)

Salvage value is the amount you can recover from the plant’s fixed capital when it is retired, after accounting for elements that don’t depreciate, like land. Since land isn’t worn out and isn’t depreciated, salvage value focuses on the value of the fixed assets (equipment, buildings, etc.) at the end of the plant’s life. Therefore it’s the initial fixed capital investment (excluding land) as of retirement, i.e., fixed capital investment minus land value, evaluated at the end of the life. This captures the recoverable value of the assets you can actually sell, separate from land. The other options describe either the initial cost, a depreciation expense, or the generic resale value of equipment without separating land, which isn’t the conventional salvage value definition.