Consider an asset that costs $687,400 and is depreciated straight-line to zero o
ID: 2635407 • Letter: C
Question
Consider an asset that costs $687,400 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 $135,700.(Do not round intermediate calculations.)
If the relevant tax rate is 30 percent, what is the aftertax cash flow from the sale of this asset?
Consider an asset that costs $687,400 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 $135,700.(Do not round intermediate calculations.)
Explanation / Answer
the depreciation allowance for each year under simplified straight line is $687400/7 = $98200
4*$98200 = $392800
687400 - 392800 = 294600
asset sold for 135700
loss = 294600 - 135700 = 158900
tax on loss = 158900*.30 = 47670
Aftertax salvage value = 47670 + 135700 = $183370