Tax Example Problem

# Tax Example Problem - TaxExampleProblem#1...

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* Tax Example Problem #1 Tax on Sale of Equipment: Original Cost:  \$1000  Current Sales Price:  \$100 Accumulated Depreciation:  \$400  (4 yrs X \$100 per yr=\$400) Tax Rate:  40% * BV: 1000 - 400 =  \$600 * \$600 > \$100 so BV > Sales Price =  Loss on Sale * Total Loss on Sale:  600 – 100 =  \$500 * Tax Shield:  500 x 0.4 = \$200 * This represents a  Real Cash Benefit!   [Inflow of \$200] * Tax Example Problem #1 Tax on Sale of Equipment: Original Cost:  \$1000  Current Sales Price:  \$100 Accumulated Depreciation:  \$400  (4 yrs X \$100 per yr=\$400) Tax Rate:  40% * Sales Price:   \$100 * Total Loss on Sale: \$500 * Tax Shield:  500 x 0.4 =  \$200 Total Cash Flow:  Sales Price +/- Tax Shield \$100 + \$200 = \$300 * Tax Example Problem #2 Tax on Sale of Equipment: Dixon Inc originally purchased equipment  four years  ago for \$1000 .  They have been depreciating the  equipment over its  10 year useful life  to a  \$0 salvage  value using straight-line depreciation .  Dixon Inc no

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