Consider an asset that costs $378,400 and is depreciated straight-line to zero o
ID: 2709116 • Letter: C
Question
Consider an asset that costs $378,400 and is depreciated straight-line to zero over its 13-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $47,300.
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)
$858,507.00
$30,745.00
$96,464.71
$91,871.15
$87,277.59
Consider an asset that costs $378,400 and is depreciated straight-line to zero over its 13-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $47,300.
Explanation / Answer
Consider an asset that costs $378,400 and is depreciated straight-line to zero over its 13-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $47,300.
Required :
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)
Sale Value = $ 47300
Accumulated Depreciation till 7 Year = Asset Cost/ Usefull life as per tax * No of life used
Accumulated Depreciation till 7 Year = 378400/13*7
Accumulated Depreciation till 7 Year = $ 203,753.85
Book Value of Asset = Cost - Accumulated Depreciation
Book Value of Asset = 378400 - 203753.85
Book Value of Asset = $ 174,646.15
Loss on Sale = Book Value of Asset - Sale Value
Loss on Sale = 174646.15 - 47300
Loss on Sale = $ 127,346.15
Aftertax cash flow = Sale Value + tax rate*Loss on Sale
Aftertax cash flow = 47300 + 35%*127346.15
Aftertax cash flow = 91,871.15
Answer
$ 91,871.15