10.00 points Problem 9-6 Colculating Salvage Value [LO 2) Consider an asset that

Question

10.00 points Problem 9-6 Colculating Salvage Value [LO 2) Consider an asset that costs $981,000 and is deprociated straignt-line to z o over ts ton yoar tax ide. The asset is to be usod in a seven year proect at the ond of the project, the asset can be sold for $135,600 If the relevant tax rate is 35 percent, what is the afertax cash flow from the sale of this asset? (Do not round intermediate calculaSons and round your answer to the nearest whole number, e.g. 32) Anertax salvage value 1 1 References Officulty 1 Basic Sechon 9 4 More on Project Cash ow Problem 9-6 Calculating Salvage Value Leaming Objective 09 02 Anslyze a proects projected cash fows Check rmy work

Explanation / Answer

Annual straight line depreciation = 9610000 / 10 = 96100

Depreciation till 7th year = 96100 * 7 = 672700

Book value at the end of 7 year = 961000 - 672700 = 288300

Since the asset is sold at less than book value, the loss will result into tax savings

After tax cash flow = 135000 + 35% * (288300 - 135000) = 188655

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