consider an asset that costs 730000 and is deperciated straight line to zero over its eight year tax life. The asset is to be used in a five year project;at the end of the project, the asset can be sold for $192000.If the relevant tax rate is 23 percent, what is the aftertax cash flow from the sale of this asset?

After tax cash flow from sale of asset = $210,802.50

Explanation:

Annual depreciation= 730,000/8= 91,250

Accumulated depreciation after 5 years = 5 X 91,250 = 456,250

Book value at end of year 5= Cost - Accumulated Depreciation

= 730,000 - 456,250 = 273,750

we can see that the Asset is sold at $192,000 which is a loss to book value

Loss on sale= $273,750 - $192,000= $81,750

Therefore,

After tax cash flow=Sale proceeds+(loss on sale*Tax rate)

=192, 000+(81,750  X 23%)

= 192,000 + 18802.5= $210,802.50

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