Consider an asset that costs $681,100 and is depreciated straight-line to zero o
ID: 2631318 • Letter: C
Question
Consider an asset that costs $681,100 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $136,100. (Do not round intermediate calculations.)
If the relevant tax rate is 40 percent, what is the aftertax cash flow from the sale of this asset?
Consider an asset that costs $681,100 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $136,100. (Do not round intermediate calculations.)
Explanation / Answer
Depreciation per year = $681,000/7 = $97,300 per year
Total Depreciation in 4 years = $97,300 x 4 = $398200
Depreciation Remaining = 681,100 - 398,200 = 291,900
Asset sells for 136,100
Therefore, the unclaimed depreciation is:
291,900 - 136,100 = $155,800
$155,800 x .4 = $62,320
After tax Cashflow = Sale price of item + Depreciation Amount Recovered
After Tax Cashflow = $136,100 + $62,320 = $198,420