Consider an asset that costs $885,600 and is depreciated straight-line to zero o
ID: 2758478 • Letter: C
Question
Consider an asset that costs $885,600 and is depreciated straight-line to zero over its nine-year tax life. The asset is to be used in a six-year project; at the end of the project, the asset can be sold for $135,900. (Do not round intermediate calculations.)
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 $885,600 and is depreciated straight-line to zero over its nine-year tax life. The asset is to be used in a six-year project; at the end of the project, the asset can be sold for $135,900. (Do not round intermediate calculations.)
Explanation / Answer
Cost of Asset=$885600
Depreciation for 6 Year= ($885600/9)*6
=$590400
Depreciated Value at the end of 6 Years= $885600-$590400
=$295200
If the Asset is old for $135900 then the Loss on Asset will be
$295200-135900
=$159300
After Tax Cash Flow from Sale of Asset is as follows
Sale Proceeds from Asset= $135900
Tax gain on Sale of asset= ($159300*35%) $55755
After Tax Cash Flow = ($135900+$55755) $191655