1. Consider an asset that costs $475,200 and is depreciated straight-line to zero over its 8-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $59,400.
Required : If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset?
A) $91,416.60 B) $519,762.00 C) $40,986.00 D) $101,039.40 E) $96,228.00
2. Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.134 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $1,008,000 in annual sales, with costs of $403,200.
Required: If the tax rate is 35 percent, what is the OCF for this project?
A) $525,420 B) $499,149 C) $604,800 D) $551,691 E) $147,420