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Unformatted text preview: * Capital Budgeting: Taxes Three Tax Situations: * Sales Tax: included in initial outlay and capitalized * Income Tax: usually a fixed marginal rate 2) Tax on Sale of Equipment: calculate book value (BV) BV = Cost - Accumulated Depreciation If BV < sale price, then there is a taxable gain If BV > sale price, then there is a taxable loss If BV = sale price, then there is no tax impact * Sales Tax Example #1 Borghi Inc is planning to purchase equipment for $1,025,500 . The equipment will be depreciated straight-line to a $0 salvage value over its 20 year useful life . The delivery and installation for this equipment is $75,000 . Sales tax on this equipment purchase is 7% . Net working capital required for the use of this equipment is $215,000 . Q1: What is the total initial outlay at time zero?...
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