Question

Suppose you sell a fixed asset for $117,000 when its book value is $137,000. If your company’s marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? (Enter your answer as a whole number.)

Suppose you sell a fixed asset for $117,000 when its book value is $137.000. If your company's marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? (Enter your answer as a whole number.) ATCF

Answer 1

Step 1)Gain/(loss) on sale of fixed asset = sale value- Book value

                                  = 117000 - 137000

                                  = -20000

Step 2)Tax expense/(Tax saving)due to loss = Gain/(loss) on sale of fixed asset* Tax rate

                                    = -20000 *21%

                                    = - 4200

Step 3)After tax cash flow = sale value- Tax expense/(tax saving)

                             = 117000 - (-4200)

                            = 117000 + 4200

                            = $ 121200