(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 2 hours ago

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