Problem 9-6 Calculating Salvage Value [LO 2] Consider an asset that costs $684,6

Question

Problem 9-6 Calculating Salvage Value [LO 2]

Consider an asset that costs $684,600 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $135,300.(Do not round intermediate calculations.)

If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?

Consider an asset that costs $684,600 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a four-year project; at the end of the project, the asset can be sold for $135,300.(Do not round intermediate calculations.)

Explanation / Answer

Book value after 4 years = 684,600*(1-4/7) = 293,400

After tax salvage value = 135,300-(135,300-293,400)*35% = $ 190,635

Hope this helped ! Let me know in case of any queries.

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