Consider an Asset That Costs $465,000 and Is Depreciated Straight-Line

question 34

Multiple Choice

Consider an asset that costs $465,000 and is depreciated straight-line to zero over its six-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 $120,000.If the relevant tax rate is 35 percent,what is the aftertax cash flow from the sale of this asset?

• A)$132,250
• B)$155,000
• C)$116,500
• D)$97,600
• E)$79,200

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Definitions:

Profit-Maximizing Output

The level of production at which a company can achieve the maximum difference between total revenue and total costs, leading to the highest possible profit.

Market Price

The present cost at which a product or service is available for purchase or sale in the market.

Economic Profit

The total revenue of a business minus its explicit and implicit costs; represents additional wealth created by a company over and above its costs.

Total Revenue

The overall amount of money generated from the sale of goods or services.