Taxes incremental depreciation reversal depreciation

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Unformatted text preview: l + Depreciation reversal Depreciation Annual Cash Flow For Years 1 - 5: 85,000 (29,750) (29,400) 25,850 (8,789) 17,061 + Depreciation reversal Annual Cash Flow For Years 1 - 5: 85,000 (29,750) (29,400) 25,850 (8,789) 17,061 29,400 Annual Cash Flow For Years 1 - 5: 85,000 Revenue (29,750) (29,400) 25,850 (8,789) 17,061 29,400 Costs Depreciation EBT Taxes EAT Depreciation reversal 46,461 = Annual Cash Flow Step 1: Evaluate Cash Flows c) Terminal Cash Flow: What is the cash flow at the end of the project’s life? after tax non-operating cash flow, occur in the final year of the project, attribute to the liquidation of the project Salvage value +/- Tax effects of capital gain/loss + Recapture of net working capital Terminal Cash Flow Step 1: Evaluate Cash Flows c) Terminal Cash Flow: What is the cash flow at c) Terminal the end of the project’s life? the 50,000 Salvage value 50,000 +/- Tax effects of capital gain/loss + Recapture of net working capital Recapture Terminal Cash Flow Terminal Salvage value>book value = tax gain Salvage value =book value= no tax effect Salvage value < book value = tax saving Tax Effects of Sale of Asset: Tax Salvage value = RM50,000. Salvage RM50,000. Book value = depreciable asset - total amount Book depreciated. depreciated. Book value = RM147,000 - RM147,000 = RM0. RM0. Capital gain = SV - BV = 50,000 - 0 = RM50,000. 50,000 Tax payment = 50,000 x .34 = (RM17,000). Tax (RM17,000). Step 1: Evaluate Cash Flows c) Terminal Cash Flow: What is the cash flow at c) Terminal the end of the project’s life? the 50,000 50,000 (17,000) (17,000) Salvage value Tax on capital gain Recapture of NWC Recapture Terminal Cash Flow Terminal Step 1: Evaluate Cash Flows c) Terminal Cash Flow: What is the cash flow at the end of the project’s life? 50,000 (17,000...
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