The Kings Inn Resort purchased three delivery carts 5 years ago. The delivery carts initially cost $60,000 and are depreciated on a straight line basis over 10 years. The effective tax rate for the company is 40%. Part A: What is the net cash flow if they sell the used carts for $36,000? Part B: What are the net cash flows if they sell the used carts for $30,000? Part C: What is the net cash flow if they sell the used carts for $25,000
The Kings Inn Resort purchased three delivery carts 5 years ago. The delivery carts initially cost $60,000 and are depreciated on a straight line basis over 10 years. The effective tax rate for the company is 40%. Part A: What is the net cash flow if they sell the used carts for $36,000? Part B: What are the net cash flows if they sell the used carts for $30,000? Part C: What is the net cash flow if they sell the used carts for $25,000
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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Question
The Kings Inn Resort purchased three delivery carts 5 years ago. The delivery carts initially cost $60,000 and are
- Part A: What is the net cash flow if they sell the used carts for $36,000?
- Part B: What are the net cash flows if they sell the used carts for $30,000?
- Part C: What is the net cash flow if they sell the used carts for $25,000
Expert Solution
Introduction
Net proceeds from sale of an asset is the proceeds as adjusted by the tax effects. In case there is a gain on sale of asset then such gain would be subject to capital gain tax and net proceeds would be proceeds minus tax.
Similarly, in case there is a loss on sale, there would be tax saving and net proceeds would be proceeds plus tax savings.
Gain on Sale
Computation of net proceeds:
Thus, net proceeds are $33,600.
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