Consider an asset that costs $237,600 and is depreciated straight-line to zero o
ID: 2759132 • Letter: C
Question
Consider an asset that costs $237,600 and is depreciated straight-line to zero over its 8-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $29,700.
If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset?
Consider an asset that costs $237,600 and is depreciated straight-line to zero over its 8-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $29,700.
Explanation / Answer
Cost of the asset = 237600
Life = 8years
Depreciation per year = 237000/8 =29625
Depreciation in 5 years =148125
WDV at the end of 5th year = 237000-148125 = 88875
Sales value = 29700
Loss on sale = 29700-88875= 59175
Tax saving on loss = 58175*34% = 20120
Net after tax cash flow on sale of asset = 59175-20120= 39055