P107 Calculating Salvage Value LO1 Consider an asset that co

P10-7 Calculating Salvage Value [LO1] Consider an asset that costs $378,400 and is depreciated straight-line to zero over its 12-year tax life. The asset is to be used in a 5-year project, at the end of the project, the asset can be sold for $47,300. Required If the relevant tax rate is 32 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.) $97,65874 O $102,798.67 O $107,938.60 $32,164.00 O $910,064.00

Solution

Depreciation per year=(Cost-Residual value)/useful life

=(378400/12)=$31533.33(Approx)

Hence book value as on date of sales=378400-(31533.33*5)=$220,733.33(Approx)

Hence loss on sales=(220733.33-47300)=$173,433.33

Hence after-tax cash flow=Sale proceeds+(Tax rate*Loss on sales)

=47300+(173,433.33*32%)

which is equal to

=$102798.67(Approx).