installment_individual_npv_solution

installment_individual_npv_solution - Installment sale...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 3

installment_individual_npv_solution - Installment sale...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online