Consider an asset that costs $786,400 and is depreciated straight-line to zero o
ID: 2637011 • Letter: C
Question
Consider an asset that costs $786,400 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $135,800.(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 $786,400 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $135,800.(Do not round intermediate calculations.)
Explanation / Answer
Book value at the end of five year = $786,400 * 3/8 = $294,900
Tax Saving = ($294,900 - $135,800) * 40% = $63,640
Aftertax cash flow = Aftertax salvage value = $135,800 + $63,640 = $199,440