Question

An asset costs $600,000 and will be depreciated straight-line over its 10-year tax life. The asset is to be used in an 8-year project; at the end of the project, the asset can be sold for $150,000. If the tax rate is 21%, what is the after-tax gain from the sale of this asset?

Question 2 options:

	10,500
	118,500
	143,700
	No enough information
	39,500

Answer 1

c. 143,700

The asset has a useful life of 10 years and we want to find the book value of the asset after 8 years. With straight-line depreciation, the depreciation each year will be

Annual depreciation = $600,000 / 10

Annual depreciation = $60,000

Accumulated depreciation = 8 * $60,000

Accumulated depreciation = $480,000

Book value at the end of Year 5 = $600,000 - $480,000 = $120,000

After-tax gain from the sale of this asset = $150,000 + ($120,000 - $150,000)(0.21)

After-tax gain from the sale of this asset = $143,700