A corporation with taxable income of $400,000 and a 40 percent tax rate is considering the sale of an asset. The original cost of the asset is $20,000, with $12,000 of it depreciated. How much total after-tax cash will be produced from the sale of the asset for $24,000?

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Quizplus · Accepted Answer

The total after-tax cash from the sale of the asset is calculated by first determining the gain on the sale, then calculating the tax on that gain, and finally subtracting the tax from the sale proceeds. The gain on the sale is the sale price minus the book value of the asset (original cost minus depreciation), which is $24,000 - ($20,000 - $12,000) = $16,000. The tax on the gain is 40% of $16,000, which is $6,400. Therefore, the after-tax cash from the sale is the sale price minus the tax, which is $24,000 - $6,400 = $17,600.

A Corporation with Taxable Income of $400,000 and a 40