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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