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 equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $40.5 million, has been depreciated straight-line over an a million The firm's tax rate is 40%, what is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions ssumed tax life of 5 years, but it can be sold now for $18.1 rounded to 1 decimal place. ter-tax cash towmillion

Explanation / Answer

Annual depreciation=(Cost-Salvage value)/Useful Life

=($40.5million/5)=$8.1million/year

Hence book value as on date of sale=Cost-Accumulated Depreciation

=$40.5-(8.1*3)=$16.2million

Hence gain on sale=(18.1-16.2)=$1.9million

Hence after-tax cash flow=Sale proceeds-(gain on sale*Tax Rate)

=18.1-(1.9*0.4)

which is equal to

=$17.3million.(Approx).

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