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Phoenix [80]
2 years ago
9

Suppose you sell a fixed asset for $112,000 when its book value is $112,000. If your company's marginal tax rate is 39 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)?
Business
1 answer:
Dmitriy789 [7]2 years ago
8 0

Answer:

The after tax cash flow will be $112,000.

Explanation:

The market value of the fixed asset is given at $112,000.

The book value of the same asset is $112,000.

The marginal tax rate is 39%.

The after tax cash flow will be

= Book\ value\ +\ (Market\ value\ -\ book\ value)\ \times\ (1\ -\ t)

= \$ 112,000\ +\  (\$ 112,000\ -\ \$ 112,000 )\ \times\ (1\ -\ 0.39)

= \$ 112,000\ +\ (0\ \times\ 0.61)

= $112,000

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