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Consider an asset that costs $544,552 and is depreciated straight-line to zero over its eight-year tax...

Consider an asset that costs $544,552 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 $156,415. If the relevant tax rate is 33 percent, what is the after-tax cash flow from the sale of this asset?
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Answer #1

Selling Price of the asset = $ 156,415

Book value of the asset = Cost price - Depreciation amount * Number of periods

Depreciation amount = Cost price / life of asset =  544,552 / 8 = $ 68,069

Book Value at the end of 5 years =544,552 - 5 * 68,069 = $ 204,207

Tax rate = 33%

Tax is borne on the difference between the selling price and the Book value of the asset

As the selling price < Book value of the asset, there will be no taxes on the cash flow

So, After tax cash flow from the sale = Selling Price = $ 156,415

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