635,000(3/8) = 238,125
Sale price: 125,000
Gain / (Loss) on sale: 125,000 - 238,125 = (113,125)
tax shield due to loss on sale: 113,125 * 0.35 = 39,593.75
...because you have this loss, net income is lower, so taxes are lower by the $39,593.75
thus, the relevant cash flow is: 125,000 + 39,593.75 = $164,593.75
What is your question? What don't you understand? Where is your solution? Do you just want someone to do your work for you? You would learn nothing that way and it would be a disservice to you. And if you turned in the answer prepared by another person as your own work you would be committing plagiarism which is unethical.
Depreciate the asset for five year to find its book value at the time of the sale. Then make the journal entry to record the sale
dr. Cash - - - -125,000
dr Loss . . . . . .
dr acuum depr.
cr . . . . .Equipment
The cash flow is obviously $125,000 and since you sold it at a loss you will receive a tax benefit amounting to a cash flow caused by having to pay less tax.
It is not appropriate of you to assign your homework to others. To get help you should do the work as well as you can and provide your solution so someone can help you by pointing out where you are wrong and by explaining areas where you show weaknesses.
Does anyone know how to solve this?
Consider an asset that costs $635,000 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 $125,000.
If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset?
Any help would be appreciated
