Consider an asset that costs $640,000 and is depreciated straight-line to zero o
ID: 2660323 • Letter: C
Question
Consider an asset that costs $640,000 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 $175,000. If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
Consider an asset that costs $640,000 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 $175,000. If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
Explanation / Answer
AFTER TAX CASHFLOW = 175000*(1-0.35)
= $113750
NOTE:- IN STRAIGHT LINE METHOD THE SALVAGE VALUE OF THE ASSET IS THE PROFIT ON SALE OF ASSET.