Question

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

Answer 1

Answer is $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