Consider an asset that costs $459,000 and is depreciated straight-line to zero over its 6-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 $120,000. 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 calculated as follows:Sale price: $120,000Less: Book value (cost - accumulated depreciation): $459,000 - (6 years x $76,500) = $225,000Taxable gain: $120,000 - $225,000 = -$105,000Tax savings (34% x -$105,000) = $35,700After-tax cash flow: $120,000 + $35,700 = $155,700

Consider an Asset That Costs $459,000 and Is Depreciated Straight-Line