An asset originally cost $630,000 and will be depreciated straight-line over seven years. It will be used for a five year project at which time the asset will be sold for $221,000. What is the after tax cash flow from the sale of the asset if the tax rate is 34%?

Question

An asset originally cost $630,000 and will be depreciated straight-line over seven years.   It will be used for a five year project at which time the asset will be sold for $221,000. What is the after tax cash flow from the sale of the asset if the tax rate is 34%?

Quizplus · Accepted Answer

The book value after 5 years is $630,000 - ($630,000/7)*5 = $180,000. The gain on sale is $221,000 - $180,000 = $41,000. The tax on the gain is $41,000 * 34% = $13,940. The after-tax cash flow is $221,000 - $13,940 = $207,060.

An Asset Originally Cost $630,000 and Will Be Depreciated Straight-Line