Question
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
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 $0. 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 $110,000. 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 ?
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