Chapter 10, Problem 9PROB

Summary Introduction

Profit or loss is the difference of the sale value of asset and book value when the asset is sold.

Calculate the profit or loss as follows:

$\text{Profit or }\left(\text{loss}\right)=\left(\text{Sale value}-\text{Book value}\right)$

After tax cash flows are the cash flows remaining after payment of tax.

Calculate the after tax cash flows as follows:

$\text{After tax net cash flow}=\left(\text{Sale value}-\left(\text{Profit}\left(\text{loss}\right)\times \text{Tax rate}\right)\right)$

TEC is selling its assets with book value of $90,000 for $102,000. Tax rate is 40%.