Consider an asset that costs $290,400 and is depreciated straight-line to zero o
ID: 2767368 • Letter: C
Question
Consider an asset that costs $290,400 and is depreciated straight-line to zero over its 12-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 $36,300. Required : If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset? Hint: If sold at a loss, taxes will be negative, so ATSV = selling price - taxes on gain, would result in subtracting negative taxes. (Do not round your intermediate calculations.)
$25,047.00
$497,685.00
$62,557.00
$65,684.85
$59,429.15
Explanation / Answer
Cost of Asset =$ 290400 DEpreciation 12 years straigt line =24,200 every year
project life is 7 years
the book value of the asset =$ 290400-169400( 24200*7)= $ 121000
but the asset is selling for $ 36300
loss on the asset = Book value - selling value =$ 121000-$ 36300=$ 84700
as the asset is depriciable asset even though the asset is selling for tax has to deducted on the capital loss
the capital loss =$ 84700 and the tax rate is 31% => tax $ 26257 (negitive)