![Problem 10-7 Calculating Salvage Value [LO1] Consider an asset that costs $720,000 and is depreciated 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 $159,000. If the relevant tax rate is 22 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.) Aftertax salvage value](http://img.homeworklib.com/questions/a59d4970-5e15-11ea-a478-9da7fc772cb3.png?x-oss-process=image/resize,w_560)
Homework Answers
Annual depreciation=(Cost-Salvage value)/Useful Life
=(720,000/8)=$90,000/year
Hence book value as on date of sale=Cost-Accumulated depreciation
=720,000-(90000*5)=$270,000
Hence loss on sale=(270,000-159000)=$111,000
Hence aftertax salvage value=Sale proceeds+(loss on sale*Tax rate)
=159000+(0.22*111000)
=$183,420.
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