Final answer:
The realized gain on disposal is the profit from selling an asset above its book value, calculated as the selling price minus the book value after depreciation. This gain impacts corporate profits after tax.
Step-by-step explanation:
The realized gain on disposal is the profit a company makes when it sells an asset for more than its book value. In other words, it's the difference between the asset's selling price and its carrying value on the balance sheet after adjusting for any accumulated depreciation. For example, if a firm sells a piece of equipment that was originally purchased for $100,000, and over time it has depreciated by $60,000, the book value of the equipment is now $40,000. If the firm sells the equipment for $50,000, the realized gain on disposal would be $10,000 ($50,000 selling price minus $40,000 book value).
This concept is particularly important in financial reporting and tax calculations, as it affects a company's corporate profits after tax. Decisions to dispose of assets are grounded in a firm's investment strategies, such as when a firm would invest with expectations of an effective rate of return, like in the provided scenario of a 4% return on a $183 million investment.