Chapter 10, Problem 10PROB

Summary Introduction

Profit or loss is the difference of the sale value of asset and book value when the asset is sold.

Calculate the tax on profit or loss as follows:

$\text{Tax on profit or }\left(\text{loss}\right)=\left(\text{Sale value}-\text{Book value}\right)\times \text{Tax rate}$

After tax cash flows are the cash flows remaining after payment of tax.

$\text{After tax net cash flow}=\left(\text{Sale value}-\text{Profit}\left(\text{loss}\right)\right)$

TEC is selling its assets with book value of $6,000 for $4,000. Tax rate is 35%.