Consider an asset that costs $490,000 and is depreciated straight-line to zero o
ID: 2706659 • Letter: C
Question
Consider an asset that costs $490,000 and is depreciated straight-line to zero over its seven-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 $165,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset?
Aftertax Salvage Value????
Please provide all work!!!
Consider an asset that costs $490,000 and is depreciated straight-line to zero over its seven-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 $165,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset?
Aftertax Salvage Value????
Please provide all work!!!
Explanation / Answer
Hi,
Please find the answer as follows:
Annual Depreciation = 490000/7 = 70000
Depreciation for 5 Years = 70000*5 = 350000
Book Value at the End of 5 Years = 490000 - 350000 = 140000
Gain on Sale of Asset = 165000 - 140000 = 25000
After Tax Cash Flow = 165000 - (25000)*.34 = 156500
Answer is 156500.
Notes:
Tax on gain on sale of asset will be deducted in the calculation of after tax cash flow from the sale of asset.
Thanks.