Q2: Your company is evaluating a new project that will require the purchase of an asset for $25,000

installed. The asset will be depreciated S/L for 5 years to zero salvage.

Your company is expecting the asset to have a market value of $4,000 at the end of 5 years.

The applicable tax rate is 30% and the cost of capital is 12%

a) Calculate the after tax asset value for the asset at the end of 5 years.

b) Calculate the gain or (loss) from the sale of the asset at the end of 5 years? (And indicate

whether it is a gain or a loss.

c) Calculate the tax consequences from the sale of the asset in 5 years and indicate whether it is a

tax liability or tax saving.