This preview shows page 1. Sign up to view the full content.
Unformatted text preview: asset, the
after-tax proceeds from the sale of the old asset, and
any change in net working capital. Finding the
after-tax proceeds from sale of the old asset, which
reduces the initial investment, involves cost, depreciation, and tax data. The book value of an asset is
its accounting value, which is used to determine
what taxes are owed as a result of its sale. Any of
three forms of taxable income—capital gain, recap- SELF-TEST PROBLEMS
LG4 ST 8–1 Capital Budgeting Cash Flows 379 tured depreciation, or a loss—can result from sale
of an asset. The form of taxable income that applies
depends on whether the asset is sold for (1) more
than its initial purchase price, (2) more than book
value but less than what was initially paid, (3) book
value, or (4) less than book value. The change in net
working capital is the difference between the change
in current assets and the change in current liabilities
expected to accompany a given capital expenditure.
Determine relevant operating cash inflows using the income statement format. The operating
cash inflows are the incremental after-tax cash inflows expected to result from a project. The incom...
View Full Document
This document was uploaded on 01/19/2014.
- Fall '13