Question

Consider an asset that costs $193,600 and is depreciated straight-line to zero over its 9-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 $24,200.

Required : |

If the relevant tax rate is 34 percent, what is the aftertax
cash flow from the sale of this asset? |

Answer #1

The asset has an nine-year useful life and we want to find the BV of the asset after five years. With straight-line depreciation, the depreciation each year will be: |

Annual depreciation = $193600/9 |

Annual depreciation = $21511.11 |

So, after five years, the accumulated depreciation will be: |

Accumulated depreciation = 5($21511.11) |

Accumulated depreciation = $107,555.55 |

The book value at the end of Year 5 is thus: |

BV |

BV |

The asset is sold at a loss to book value, so the depreciation tax shield of the loss is recaptured. |

Aftertax salvage value = $24,200+ ($86,044.45− 24,200)(0.34) |

Aftertax salvage value = $45227.113 |

To find the taxes on salvage value, remember to use the equation: |

Taxes on salvage value = (BV − MV) |

This equation will always give the correct sign for a tax inflow
(refund) or outflow (payment).

Consider an asset that costs $193,600 and is depreciated
straight-line to zero over its 11-year tax life. The asset is to be
used in a 4-year project; at the end of the project, the asset can
be sold for $24,200. Required : If the relevant tax rate is 34
percent, what is the aftertax cash flow from the sale of this
asset? (Do not round your intermediate calculations.)
$57,860.00
$60,753.00
$15,972.00
$54,967.00
$493,208.00

Consider an asset that costs $501,600 and is depreciated
straight-line to zero over its 9-year tax life. The asset is to be
used in a 3-year project; at the end of the project, the asset can
be sold for $62,700.
Required :
If the relevant tax rate is 35 percent, what is the aftertax
cash flow from the sale of this asset? (Do not round your
intermediate calculations.)
$157,795.00
$165,684.75
$149,905.25
$40,755.00
$1,138,017.00

Consider an asset that costs $202,400 and is depreciated
straight-line to zero over its 9-year tax life. The asset is to be
used in a 6-year project; at the end of the project, the asset can
be sold for $25,300.
Required :
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.)
rev: 09_18_2012
$16,951.00
$234,037.00
$41,175.75
$37,254.25
$39,215.0

Consider an asset that costs $712,000 and is depreciated
straight-line to zero over its eight-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 $184,000. If the relevant tax rate is 35
percent, what is the aftertax cash flow from the sale of this
asset? (Do not round intermediate calculations.)
Aftertax salvage value $

Consider an asset that costs $690,000 and is depreciated
straight-line to zero over its eight-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 $147,000. If the relevant tax rate is 21
percent, what is the aftertax cash flow from the sale of this
asset? (Do not round intermediate calculations.)
Aftertax salvage value?

Consider an asset that costs $220,000 and is depreciated
straight-line to zero over its 5-year tax life. The asset is to be
used in a 3-year project; at the end of the project, the asset can
be sold for $27,500.
Required :
If the relevant tax rate is 32 percent, what is the aftertax
cash flow from the sale of this asset? (Do not round your
intermediate calculations.)

Consider an asset that costs $705,000 and is depreciated
straight-line to zero over its eight-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 $153,000. If the relevant tax rate is 24
percent, what is the aftertax cash flow from the sale of this
asset? (Do not round intermediate
calculations.)
After tax salvage value ?

Consider an
asset that costs $584,000 and is depreciated straight-line to zero
over its eight-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 $182,000. If the relevant tax rate is 21 percent, what is the
aftertax cash flow from the sale of this asset? (Do not
round intermediate calculations.)
Multiple Choice
$168,852
$219,000
$182,000
$173,970
$189,770

Consider an asset that costs $360,800 and is depreciated
straight-line to zero over its 8-year tax life. The asset is to be
used in a 2-year project; at the end of the project, the asset can
be sold for $45,100.
Required :
If the relevant tax rate is 32 percent, what is the aftertax
cash flow from the sale of this asset? (Do not round your
intermediate calculations.)
$123,123.00
$117,260.00
$752,280.00
$111,397.00
$30,668.00

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

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