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13. Consider an asset that costs $511,000 and is depreciated straight-line to zero over its seven-year...

13. Consider an asset that costs $511,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $168,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.)

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Expert Solution

So basically we first need to draw a depreciation schedule as shown in the image below. If useful life is of 7 years then the cost of 511000 will be depreciated by 73000 every year.

If it is used for 5 years and then sold off at 168000 then we need to see if we are selling it at a profit as compared to its depreciated value (closing balance at the end of year 5 or 146000). As we are selling ar a profit, we need to pay a tax of 34% on it and the net cashflow from the sale will be the sale value adjusted for the tax.

jeff jeffy answered 2 years ago
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