Consider an asset that costs $977,000 and is depreciated straight-line to zero o
ID: 2718457 • Letter: C
Question
Consider an asset that costs $977,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $135,200.(Do not round intermediate calculations.)
If the relevant tax rate is 40 percent, what is the aftertax cash flow from the sale of this asset?
Consider an asset that costs $977,000 and is depreciated straight-line to zero over its ten-year tax life. The asset is to be used in a seven-year project; at the end of the project, the asset can be sold for $135,200.(Do not round intermediate calculations.)
Explanation / Answer
aftertax cash flow from the sale of this asset is $198,360 Cost of Asset 977,000.00 Life in Years 10.00 Salvage Value - Depreciation per year= 977,000/10 97,700.00 Dep for 7 Years = 97700*7 683,900.00 Book Value after 7 Years = 977,000 - 683,900 293,100.00 Sale Value 135,200.00 Loss on Sale = 293100 - 135200 157,900.00 Tax Savings on Loss @40% 63,160.00 After Tax Cash Flow = 135,200 + 63,160 198,360.00