Of course it is not unusual for the value of an asset

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: eeds from sale of new asset Proceeds from sale of new asset Tax on sale of new asset After-tax proceeds from sale of old asset Proceeds from sale of old asset Tax on sale of old asset Change in net working capital Terminal cash flow D3 T $76,000 0.40 $12,000 $64,000 Substituting into the equation yields ICI3 [$50,000 $30,000 (1 0.40)] $25,600 ($64,000 0.40) $55,600 The $55,600 of incremental cash inflow for year 3 is the same value as that calculated for year 3 in column 3 of Table 8.9. 376 PART 3 Long-Term Investment Decisions Taxes on Sale of Assets Earlier we calculated the tax on sale of old asset (as part of finding the initial investment). Similarly, taxes must be considered on the terminal sale of both the new and the old asset for replacement projects and on only the new asset in other cases. The tax calculations apply whenever an asset is sold for a value different from its book value. If the net proceeds from the sale are expected to exceed book value, a tax payment shown as an outf...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online