installment_individual_npv_solution

# installment_individual_npv_solution - Installment sale...

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Installment sale – individual taxpayer [ Solution ] If Walter Brown sells a piece of land held for investment purposes on an installment basis. The sales contract calls for an initial down payment of \$20,000 followed by annual installments of \$50,000 for the next two years. Brow’s tax basis in the land (purchased 5 years ago) is \$40,000. Brown’s marginal tax rate is 35 percent; it has no capital loss carryforwards at the time of the sale; and uses a 10 percent discount rate to determine present value. Required : [1] Compute the net present value of the after-tax cash flows if Brown elects NOT to use the installment method. [2] Compute the net present value of the after-tax cash flows if Brown uses the installment method. Solution [1] Compute the net present value of the after-tax cash flows if Brown elects NOT to use the installment method. First, compute the gain realized on the sale. Amount realized

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## This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

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installment_individual_npv_solution - Installment sale...

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