Consider an asset that costs $511,000 and is depreciated straight-line to zero o
ID: 2709010 • Letter: C
Question
Consider an asset that costs $511,000 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 $168,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.)
Consider an asset that costs $511,000 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 $168,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.)
Explanation / Answer
Written down value at the end of project:
= $511,000×2÷7
= $146,000
Profit on sale:
= $168,000-$146,000
= $22,000
After tax salvage value:
= $168,000-$22,000×34%
= $160,520