Consider an asset that costs $311,000 and is depreciated straight-line to zero over its six-year tax life.The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $58,000.If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset?

Question

Quizplus · Accepted Answer

The after-tax cash flow from the sale of the asset is the sale price minus the book value of the asset, multiplied by the tax rate. The book value of the asset is the cost of the asset minus the accumulated depreciation. The accumulated depreciation is the cost of the asset divided by the tax life of the asset, multiplied by the number of years the asset has been used. In this case, the book value of the asset is $311,000 - ($311,000 / 6) * 4 = $124,400. The after-tax cash flow from the sale of the asset is $58,000 - $124,400 * 0.34 = $73,526.67.

Consider an Asset That Costs $311,000 and Is Depreciated Straight-Line