Question

Consider an asset that costs $459,000 and is depreciated straight-line to zero over its 6-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 $120,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset?
$131,220
$127,840
$116,500
$97,600
$79,200

Answer 1

e) $79,200
During 4 year when asset was used in project we depreciated $306,000 and this money is not taxable so we can recognize it as costs in full.& So we must pay tax only for $120,000 when we sell asset. Tax payment will be $40,800. And aftertax cash flow will be $79,200