Question

Consider an asset that costs $316,800 and is depreciated straight-line to zero over its 12-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 $39,600.

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.)

A) $26,928.00

B) $660,540.00

C) $81,496.80

D) $73,735.20

E) $77,616.00

Answer 1

Ans.	Option E   $77,616
	After tax cash flow from the sale of asset = Sales value + (Book value - sales value) * tax rate
			$39,600 + ($158,400 - $39,600) * 0.32
			$39,600 + $118,800 * 0.32
			$39,600 + $38,016
			$77,616
	*Calculations:
	Depreciation = Cost / useful life of asset
		$316,800 / 12
		$26,400
	Accumulated depreciation for 6 years =   $26,400 * 6
			$158,400
	Book value = Total cost - Accumulated Depreciation of 6 years
		$316,800 - $158,400
		$158,400