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....

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 ?

• 
  
  An inflow of $118,000
  
  


• 
  
  
  

  
  An inflow of $108,000
  
  


• 
  
  
  

  
  An inflow of $110,000
  
  


• 
  
  
  

  
  none of the choices is correct
  
  


• 
  
  
  

  
  An inflow of $112,000