Chapter 10 Assignment Question 2 (of 4) 2 10.00 points Consider an asset that co

Question

Chapter 10 Assignment Question 2 (of 4) 2 10.00 points Consider an asset that costs $484,000 and is depreciated straight-line to zero over its 14-year tax life. The asset is to be used In a 7-year project; at the end of the project, the asset can be sold for $60,500. Required If the relevant tax rate ls 31 percent, what is the aftertax cash flow from the sale of this asset? (oo not round your intermediate calculations. O $41745.00 O $116,765.00 $10.92675 O $122.603.25 $1129.54700 MacBook Air esc 20 F2 F7

Explanation / Answer

Cost of Asset = $484,000
Depreciated to zero over a life of 14 years

Annual Depreciation = $484,000 / 14
Annual Depreciation = $34,571

Asset is used in a 7-year project

Depreciation over 7-years = $34,571 * 7
Depreciation over 7-years = $241,997

Book Value at the end of 7 year = $484,000 - $241,997
Book Value at the end of 7 year = $242,003

After-tax Salvage Value = Salvage Value - tax rate * (Salvage Value - Book Value)
After-tax Salvage Value = $60,500 - 0.31 * ($60,500 - $242,003)
After-tax Salvage Value = $116,765.00

So, after-tax cash flow from the sale of this asset is $116,765.00

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