**Scenario: Impact of Selling a Fixed Asset on Cash Flows**Suppose you sell a fixed asset for $115,000 when its book value is $135,000. If your company’s marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?---**Explanation:**- **Book Value:** The value of the asset on the company's balance sheet, which in this case is $135,000.- **Sale Price:** The amount the asset is sold for, which is $115,000.- **Loss on Sale:** Since the sale price is lower than the book value, the company incurs a loss of $20,000.- **Tax Impact:** - This $20,000 loss is tax-deductible. - Tax savings due to the loss = Loss on Sale x Marginal Tax Rate. - Tax savings = $20,000 x 21% = $4,200.**After-Tax Cash Flow Calculation:**1. **Net Cash Received from Sale:** $115,000 (the amount received).2. **Add Tax Savings:** $4,200.3. **Total After-Tax Cash Flow:** $115,000 + $4,200 = $119,200.Thus, the after-tax cash flow from the sale of the asset is $119,200.

The after tax cash flow is calculated as cash flow from sale proceeds minus tax on gain on sale

Suppose you sell a fixed asset for $115,000 when it's book value is $135,000. If your company's marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Suppose you sell a fixed asset for $115,000 when it's book value is $135,000. If your company's marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Mf1. Consider an asset that costs $492,800 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 2-year project; at the end of the project, the asset can be sold for $61,600. If the relevant tax rate is 22 percent, what is the aftertax cash flow from the sale of this asset?
ABC, Inc., is considering purchase of a new equipment. The expected sales are expected to be $5,556,982. The annual cash operating expenses are expected to be $2,957,536. The annual depreciation is estimated to be $456,926 and the interest expense is estimated to be $206,975. If the tax rate is 33%, what is the operating cash flow?
You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm's free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $64 million, had a tax rate of 21 percent, and its depreciation expense was $5 million. Fields and Struthers's NOPAT gross fixed assets increased by $30 million from 2020 and 2021. The firm's current assets increased by $26 million and spontaneous current liabilities increased by $15 million. Calculate Fields and Struthers's NOPAT operating cash flow for 2021. (Enter your answer in millions of dollars rounded to 2 decimal places.) Operating cash flow Calculate Fields and Struthers's NOPAT investment in operating capital for 2021. (Enter your answer in millions of dollars.) Investment in operating capital million Free cash flow Check my work million million Calculate Fields and Struthers's NOPAT free cash flow for 2021. (Enter your answer in millions of dollars rounded to 2 decimal places.)
Suppose that the marginal tax rate is 15%. If a farmer decides to purchase a combine it will increase his revenue by $6,000 per year, but it will also increase his expenses by $1,000 per year. The before tax rate on this investment is 25%. The life of this investment is 6 years. What is the present value of the after tax net return? $14,133 $12,544 $16,084 $13,706 None of the answers are correct
Assume that you calculated the ATER after year 3 as $275,000, the after-tax cash flow in year 4 was $6,800 and grew by 3% until year 8, and the ATER in year 8 was $300,000. Use this information to calculate the incremental IRR for not selling the property and collecting rents for years 4-8. What is the incremental IRR for not selling the property? A. 2.88% B. 4.29% C.-41.90% D. 6.40%
Firm X is considering the replacement of an old machine with one that has a purchase price of $70,000. The current market value of the old machine is $22,000 but the book value is $ 37,000. The firm's combined tax rate is 27%. What is the net cash outflow for the new machine after considering the sale of the old machine? Disregard the effect of depreciation of the new machine if acquired.
None
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment 1 $ 73 33 40 12 19 a. Total value b. Laputa's equity Year 2 $93 43 50 15 22 3 $ 108 48 60 18 25 4 $ 113 53 60 18 27 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 18%, its debt yields 9%, and it pays corporate tax at 30%. a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.
6. A machine could be purchased for £800,000; it would be used for 3 years and then sold for £580,000. It would qualify for capital allowances at 18% reducing balance basis with a balancing allowance or charge on disposal. The company pays tax at 20% and has a cost of capital of 10%. What is the present value of the tax cashflow at time 1, to the nearest £100? A £14,700 B £26,200 C £28,800 D £144,000
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices that apply.) A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as a capital expense. B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear each year as an operating expense. C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years. D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by $2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
Suppose you sell a fixed asset for $125,000 when its book value is $139,000. If your company's marginal tax rate is 30%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? Group of answer choices a. $120,080 b. $129,200 c. $9,800 d. $14,000

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