Answer:
The correct answer is $263,200.
Explanation:
According to the scenario, the given data are as follows:
Salvage value =$220,000
Working capital = $60,000
Book value = $140,000
Tax rate = 21%
So, Gain on disposal = Salvage value - Book value
= $220,000 - $140,000 = $80,000
Now, Tax paid on gain on disposal value = Gain on disposal × tax rate
= $80,000 × 21% = $16,800
So, Salvage value after tax = Salvage value - Tax paid on gain on disposal value
= $220,000 - $16,800
= $203,200
So, we can calculate the terminal cash flow by using following formula:
Terminal cash flow = Salvage value after tax + Working value
= $203,200 + $60,000
= $263,200
