Answered

Betatech has some slightly obsolete equipment that still has a book value of $300,000 on their balance sheet. They can sell the equipment now for $210,000, and they would recover $40,000 in working capital. Their tax rate is 21%. If they sell the equipment, what would be the terminal cash flow?

Answer :

Answer:

$268,900

Explanation:

The terminal cashflow (cashflow at the end of projects) is calculated as be low:

Terminal casflow = Proceeds from sales of fixed asset - Tax on gain/(Loss) on sales of fixed asset + working capital recovery

                            = Proceeds from sales of fixed asset - Gain/(Loss) on sales of fixed asset  x Tax rate + working capital recovery

                            = Proceeds from sales of fixed asset - (Proceeds from sales of fixed asset  - Remaining book value of fixed asset) x Tax rate + working capital recovery

Putting all the number toghether, we have:

Terminal casflow = 210,000 - (210,000 - 300,000) x 21% + 40,000 = 268,900

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