Unformatted text preview: ecaptured depreciation of $30,000 ($50,000 sale
proceeds $20,000 book value). Applying the ordinary tax rate of 40% to this
$30,000 results in a tax of $12,000 (0.40 $30,000) on the sale of the proposed
machine. Its after-tax sale proceeds would therefore equal $38,000 ($50,000 sale 13. As noted earlier, the change in net working capital is for convenience assumed to occur instantaneously—in this
case, on termination of the project. In actuality, it may take a number of months for the original increase in net
working capital to be worked down to zero.
14. In practice, the full net working capital investment may not be recovered. This occurs because some accounts
receivable may not be collectible and some inventory will probably be obsolete, and so their book values cannot be
fully realized. CHAPTER 8 Capital Budgeting Cash Flows 377 proceeds $12,000 taxes). Because the present machine would net $0 at termination and its book value would be $0, no tax would be due on its sale. Its aftertax sale proceeds would therefore equal $0. Substituting the appropri...
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This document was uploaded on 01/19/2014.
- Fall '13