You are conducting a discounted cash flow analysis (DCF). You purchased an asset for $400,000 at time point zero. The asset was depreciating using straight line depreciation over a ten year schedule. When you initially placed the asset into service, you expected the asset to have a disposal / salvage value of 50,000. At the end of year seven the project is suddenly cancelled due to a change in technology and the asset is sold in the open market for $175,000. Prior to this transaction, the firm was forecasted to earn $1,000,000 profit after tax in year seven and the tax rate for the firm is 20%.

What is the cash flow, in time period seven, as a result of this transaction ?

Multiple Choice

• An inflow of $118,000

• An inflow of $108,000

• An inflow of $110,000

• An inflow of $112,000

• none of the choices is correct