Question

# Consider an asset that costs \$176,000 and is depreciated straight-line to zero over its 12-year tax...

 Consider an asset that costs \$176,000 and is depreciated straight-line to zero over its 12-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 \$22,000.

 Required : If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)

rev: 09_18_2012

\$44,656.34

\$49,357.00

\$15,180.00

\$410,752.00

\$47,006.67

Cost of Asset = \$176,000
Useful Life = 12 years

Annual Depreciation = Cost of Asset / Useful Life
Annual Depreciation = \$176,000 / 12
Annual Depreciation = \$14,666.67

Book Value at the end of Year 5 = \$176,000 - 5 * \$14,666.67
Book Value at the end of Year 5 = \$102,666.65

Salvage Value = \$22,000

After-tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * tax
After-tax Salvage Value = \$22,000 - (\$22,000 - \$102,666.65) * 0.31
After-tax Salvage Value = \$22,000 + \$25,006.67
After-tax Salvage Value = \$47,006.67