Consider an asset that costs $966,000 and is depreciated straight-line to zero o
ID: 2660108 • Letter: C
Question
Consider an asset that costs $966,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,800.
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? (Do not include the dollar sign ($).)
Consider an asset that costs $966,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,800.
Explanation / Answer
Consider an asset that costs $966,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,800.
Required:
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? (Do not include the dollar sign ($).)
Annual depreciation =966,000/10=96600
Accumulated depreciation =96600x7=676200
Book value= 966000-676200=289800
the aftertax cash flow from the sale of this asset
=136,800+(289800-136,800)x0.35=190350--answer
Consider an asset that costs $966,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $136,800.