Consider an asset that costs $650,000 and is depreciated straight-line to zero over its nine-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 $131,000. If the relevant tax rate is 23 percent, what is the aftertax cash flow from the sale of this asset?

To calculate the after-tax cash flow from the sale of the asset, we need to follow these steps:

### 1. **Determine the Book Value of the Asset After 5 Years**
Since the asset is being depreciated straight-line over its 9-year tax life, the annual depreciation is:

\[
\text{Annual Depreciation} = \frac{650,000}{9} = 72,222.22
\]

After 5 years, the accumulated depreciation is:

\[
\text{Accumulated Depreciation} = 72,222.22 \times 5 = 361,111.11
\]

Therefore, the book value of the asset after 5 years is:

\[
\text{Book Value} = 650,000 - 361,111.11 = 288,888.89
\]

### 2. **Calculate the Gain or Loss on the Sale**
The asset is sold for $131,000, and the book value after 5 years is $288,888.89, so the loss on the sale is:

\[
\text{Loss} = 131,000 - 288,888.89 = -157,888.89
\]

### 3. **Calculate the Tax Impact**
Since the sale results in a loss, this loss will reduce the taxable income. The tax savings from this loss are:

\[
\text{Tax Savings} = 157,888.89 \times 0.23 = 36,314.44
\]

### 4. **Determine the After-Tax Cash Flow**
The after-tax cash flow from the sale is the sale price plus the tax savings from the loss:

\[
\text{After-Tax Cash Flow} = 131,000 + 36,314.44 = 167,314.44
\]

### Final Answer:
The after-tax cash flow from the sale of the asset is **$167,314.44**.

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Do you need any further clarification or more details on the calculation?

Here are 5 related questions:
1. How would the after-tax cash flow change if the tax rate was higher?
2. What happens if the asset was sold for a profit instead of a loss?
3. How would the depreciation method affect the after-tax cash flow?
4. Can we use MACRS depreciation for this calculation? How would it affect the results?
5. What if the project lasted for more than 5 years; how would that change the book value?

**Tip**: When selling assets in a project, it's important to account for tax impacts of any gains or losses to accurately measure after-tax cash flow.

Learn how to calculate the after-tax cash flow from the sale of an asset depreciated over its nine-year tax life. This problem involves depreciation, book value calculation, and tax impacts, perfect for finance or accounting students. Asset cost: $650,000, tax rate: 23%, and sale price: $131,000.

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