Question

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?

Answer #1

**After-tax Salvage
Value**

**Annual Depreciation
expense using straight line method**

Depreciation expense using straight line method = [Cost of the asset – Salvage Value] / 8 Years

= [$690,000 - $0] / 8 Years

= $86,250 per year

**Accumulated
Depreciation for the 5 Years**

Accumulated Depreciation Expense = Depreciation per year x 5 Years

= $86,250 per year x 5 Years

= $431,250

**Book Value of the
asset after Year 5**

Book Value of the asset after Year 5 = Cost of the asset – Accumulated Depreciation

= $690,000 - $431,250

= $258,750

**Loss on sale of
Equipment**

Loss on sale of Equipment = Book Value of the asset – Sale Proceeds

= $258,750 - $147,000

= $111,750

**Here, the asset is
sold at a loss of $111,750, therefore, there would be a
depreciation tax shield of the loss**

**The After-tax salvage
Value**

After-tax salvage value = Sale Proceeds + [Loss on sale x Tax Rate]

= $147,000 + [$111,750 + 21%]

= $147,000 + 23,467.50

= $170,467.50

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 $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
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$219,000
$182,000
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$189,770

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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?

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? (Do not round your
intermediate calculations.)

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 $404,800 and is depreciated
straight-line to zero over its 6-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 $50,600.
If the relevant tax rate is 21 percent, what is the aftertax
cash flow from the sale of this asset?

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?

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.)
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$60,753.00
$15,972.00
$54,967.00
$493,208.00

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straight-line to zero over its 8-year tax life. The asset is to be
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Required :
If the relevant tax rate is 32 percent, what is the aftertax
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$111,397.00
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