Consider an asset that costs $640,000 and is depreciated straight-line to zero o
ID: 2706564 • 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
book value after 5 years = 640,000-5*640,000/8 =$240000
aftertax cash flow from the sale = 175,000 -(175,000-240000)*35% =$197750