Six years ago, ABC Company invested $47,736 in a new machinery. The investment in net working capital was $9,046 which would be recovered at the end of the project. Today, ABC Company is selling the machinery for $17,745. Today, the book value of the machinery is $11,017. The tax rate is 35 percent. What are the terminal cash flows in Year 6? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

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A:

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A: Step 1:

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.