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(Estimated time allowance: 4 minutes) Pera Inc. is planning to buy a piece of equipment that...

(Estimated time allowance: 4 minutes) Pera Inc. is planning to buy a piece of equipment that can be used in a 9-year project. The equipment costs $2,000,000; has a tax life of 10 years, and is depreciated using the straight-line method. The equipment can be sold at the end of 9 years for $200,000. If the marginal tax rate is 20 percent, what is termination value of the equipment (the after-tax cash flow from the sale of this asset)? PLEASE SHOW ALL STEPS!!

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Expert Solution

Terminal value is $ 200,000

Working;

Step-1:Calculation of book value of asset at the end of life
Cost $     20,00,000
Less accumulated depreciation $     18,00,000
Book Value of asset $       2,00,000
Working;
Straight Line Depreciation = Cost/Useful Life
= 2000000/10
= $       2,00,000
Accumulated depreciation for 9 years = $       2,00,000 * 9
= $     18,00,000
Step-2:Calculation of profit (loss) on sale of asset
Sales Price of asset $       2,00,000
Less book value of asset $       2,00,000
Profit (Loss ) on sale of asset $ 0
Step-3:Calculation of after tax sale proceeds
Sales Proceeds $       2,00,000
Tax on sale of asset $ 0  
After tax cash flow from sale of asset $       2,00,000

jeff jeffy answered 1 year ago
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