The tax calculations apply whenever an asset is sold

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Unformatted text preview: low (deduction from sale proceeds) will occur. When the net proceeds from the sale are less than book value, a tax rebate shown as a cash inflow (addition to sale proceeds) will result. For assets sold to net exactly book value, no taxes will be due. Change in Net Working Capital When we calculated the initial investment, we took into account any change in net working capital that is attributable to the new asset. Now, when we calculate the terminal cash flow, the change in net working capital represents the reversion of any initial net working capital investment. Most often, this will show up as a cash inflow due to the reduction in net working capital; with termination of the project, the need for the increased net working capital investment is assumed to end.13 Because the net working capital investment is in no way consumed, the amount recovered at termination will equal the amount shown in the calculation of the initial investment.14 Tax considerations are not involved. Calculating the terminal cash flow involves the same procedures as those used to find the initial investment. In the following example, the terminal cash flo...
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