In either case the loss will save the firm 7200 18000

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Unformatted text preview: loss can be used only to offset capital gains. In either case, the loss will save the firm $7,200 ($18,000 0.40) in taxes. And, if current operating earnings or capital gains are not sufficient to offset the loss, the firm may be able to apply these losses to prior or future years’ taxes.6 Change in Net Working Capital7 net working capital The amount by which a firm’s current assets exceed its current liabilities. Net working capital is the amount by which a firm’s current assets exceed its current liabilities. This topic is treated in depth in Chapter 14, but at this point it is important to note that changes in net working capital often accompany capital expenditure decisions. If a firm acquires new machinery to expand its level of operations, it will experience an increase in levels of cash, accounts receivable, inventories, accounts payable, and accruals. These increases result from the need 6. As noted in Chapter 1, the tax law provides detailed procedures for using tax loss carrybacks/carryforwards. Application of such procedures to capital budgeting is beyond the scope of this text, and...
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This document was uploaded on 01/19/2014.

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