Question

Young Company received $18,000 cash from the sale of a machine that had a $13,000 book value. If the company is subject to a 30% income tax rate, the net cash flow to use in a discounted-cash-flow analysis would be

Answer 1

To calculate the net cash flow for a discounted cash flow analysis, subtract the income tax from the cash received from the sale. Use the formula: Net cash flow = Cash received from sale - Income tax.

Step-by-step explanation:

To calculate the net cash flow to use in a discounted cash flow analysis, we need to subtract the income tax from the cash received from the sale. The cash received from the sale is $18,000 and the book value of the machine is $13,000.

First, we calculate the gain on the sale of the machine:

Gain on sale = Sale price - Book value

Gain on sale = $18,000 - $13,000

Gain on sale = $5,000

Next, we multiply the gain on sale by the income tax rate to calculate the income tax:

Income tax = Gain on sale x Income tax rate

Income tax = $5,000 x 30%

Income tax = $1,500

Finally, we subtract the income tax from the cash received from the sale:

Net cash flow = Cash received from sale - Income tax

Net cash flow = $18,000 - $1,500

Net cash flow = $16,500

Answer 2

Answer: $3500

Explanation: ($18,000 - $13,000) x (1 - 30%) = $3500