Consider an asset that costs $316,800 and is depreciated straight-line to zero o
ID: 2797096 • Letter: C
Question
Consider an asset that costs $316,800 and is depreciated straight-line to zero over its 13-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 $39,600.
If the relevant tax rate is 33 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)
a) $889,032.00
b) $95,410.11
c) $90,866.77
d) $86,323.43
e) $26,532.00
Consider an asset that costs $316,800 and is depreciated straight-line to zero over its 13-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 $39,600.
Explanation / Answer
Depreciation per year=(316800/13)=$24369.23077
Hence book value as on date of sales=316800-($24369.23077*5)=$194953.8462
Hence loss on sales=(194953.8462-39600)=155353.8462
Hence after tax cash flow=Sale proceeds+(Tax rate*Loss on sales)
=39600+(155353.8462*0.33)
=$90866.77(Approx)