Lg3 calculate the initial investment associated with

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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...
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This document was uploaded on 01/19/2014.

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