Homework Answers
a. The relevant cash flow include the sale price of the machine as well as the tax on the capital gain
= $ 1,000,000 - 0.25 ( $ 1,000,000 - $ 812,000 )
= $ 953,000
b. If the market price of the machine is $ 600,000, then the relevant cash flow will include the sale price and the tax savings on capital loss:
= $ 600,000 + 0.25 ( $ 812,000 - $ 600,000 )
= $ 653,000
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