1.a) Consider an asset that costs $8,014 and is depreciated straight-line to zer
ID: 2633290 • Letter: 1
Question
1.a) Consider an asset that costs $8,014 and is depreciated straight-line to zero over its nine-year tax life. The asset is to be used in a 6-year project; at the end of the project, the asset can be sold for $1,608. If the relevant tax rate is 25 percent, what is the aftertax cash flow from the sale of this asset?
1.b) Meld Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $33,344, and the company expects to sell 1,553 units per year. The company currently sells 2,043 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,876 units per year. The old board retails for $28,554. Variable costs are 49 percent of sales, depreciation on the equipment to produce the new board will be $1.17 million per year, and fixed costs are $1.17 million per year. If the tax rate is 36 percent, what is the annual OCF for the project?
Explanation / Answer
1974.79
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