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Consider an asset that costs $595197 and is depreciated straight-line to zero over its seven-year tax...

Consider an asset that costs $595197 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $152603. If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?

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Answer #1

Depreciation per year = Asset price / total life

Depreciation = 595197 / 7 = 85028.14286

Book value of asset = Asset purchase price or cost - Depreciation x total number of usage in years

Book value of asset = 595197 - 85028.14286 x 5

Book value of asset = 170056.2857

Loss on sales of asset = Sales value – Book value

Loss on sales of asset = 152603 - 170056.2857

Loss on sales of asset = - 17453.2857

After tax cash flow = Sales value + |Loss on sale of asset| x tax rate

After tax cash flow = 152603 + 17453.2857 x 35%

After tax cash flow = $158,711.65

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