Quick Computing installed its previous generation of computer chip manufacturing

Question

Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $36.5 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $17.3 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 2 decimal places.)

After-tax cash flow $ million

Explanation / Answer

Asset cost $ 36,500,000 Depreciation: Year 1 $    7,300,000 Year 2 $    7,300,000 Year 3 $    7,300,000 WDV after 3 years $ 14,600,000 Resale price $ 17,300,000 Profit $    2,700,000 Tax@30% $        810,000 After tax cash flows from sale $ 16,490,000

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