Question

Consider an asset that costs $369,600 and is depreciated straight-line to zero over its 9-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 $46,200. Required : If the relevant tax rate is 33 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)

Answer 1

Aftertax cash flow from the sale of this asset is				$ 98,714.00
Working:
# 1	Calculation of straight line annual depreciation:
		Depreciation expense			=	(Cost - Salvage Value)/Useful Life
					=	(369600-0)/9
					=	$       41,066.67
# 2	Accumulated depreciation for 4 years				=	Annual depreciation * Used life
					=	$       41,066.67	*	4
					=	$   1,64,266.67
# 3	Book Value of asset at the end of 4 year's project				=	Cost - Accumulated depreciation
					=	$   3,69,600.00	-	$ 1,64,266.67
					=	$   2,05,333.33
# 4	Sale price				a	$       46,200.00
	Book value of asset				b	$   2,05,333.33
	Profit on sale				c=a-b	$ -1,59,133.33
	Tax on profit on sale				d=c*33%	$     -52,514.00
	After tax cash flow from sale of asset				e=a-d	$       98,714.00