Question

Cusic music company is considering the sale of a new souconsider an asset that costs $735,000 and is depreciated straight-line to zero over its 10-year tax life. the asset is to be used in a 8-year project; at the end of the project, the asset can be sold for $225,000. if the relevant tax rate is 25 percent, what is the aftertax cash flow from the sale of this asset?nd board used in recording studios. the new board would sell for $24,600, and the company expects to sell 1,630 per year. the company currently sells 1,980 units of its existing model per year. if the new model is introduced, sales of the existing model will fall to 1,650 units per year. the old board retails for $23,000. variable costs are 52 percent of sales, depreciation on the equipment to produce the new board will be $1,095,000 per year, and fixed costs are $3,225,000 per year. if the tax rate is 23 percent, what is the annual ocf for the project?

Answer 1

The aftertax cash flow from the sale of this asset is $223,875.

Step-by-step explanation:

To calculate the aftertax cash flow from the sale of this asset, we need to consider the tax implications. The asset was purchased for $735,000 and is depreciated straight-line to zero over its 10-year tax life. At the end of the 8-year project, it can be sold for $225,000. The relevant tax rate is 25 percent.

To calculate the aftertax cash flow, we first find the book value of the asset at the end of the project by subtracting the depreciation taken over the project's duration from the initial cost. Then, we apply the tax rate to the difference between the selling price and the book value to calculate the tax paid on the sale. Finally, we subtract the tax paid from the selling price to find the aftertax cash flow.

Let's calculate:

Book value of the asset = $735,000 - ($735,000 / 10 * 8) = $220,500

Tax paid on the sale = ($225,000 - $220,500) * 0.25 = $1,125

Aftertax cash flow = $225,000 - $1,125 = $223,875