After-Tax Cash Flows: Final Disposal At the end of the life of the project, there are...
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After-Tax Cash Flows: Final Disposal At the end of the life of the project, there are two major sources of cash: (1) release of working capital and (2) preparation, removal, and sale of the equipment (salvage value effects). Any working capital committed to a project is released at this point. The release of working capital is a cash inflow with no tax consequences. Disposing of an asset associated with a project also has cash consequences. At times, an asset may have a market value at the end of its life. The selling price less the cost of removal and cleanup produces a gross cash inflow. See Step 3 for how to calculate the tax effects associated with the disposal of an asset. Apply the Concepts A company invested $180,000 of working capital at the beginning of a project. At the end of the project, an asset has a selling price of $120,000. Its removal and cleanup costs total $30,000. The book value of the asset is $15,000. The tax rate is 40 percent. Required: Calculate the after-tax expected cash flow at the end of the project's life: $ -48,000 X After-Tax Cash Flows: Final Disposal At the end of the life of the project, there are two major sources of cash: (1) release of working capital and (2) preparation, removal, and sale of the equipment (salvage value effects). Any working capital committed to a project is released at this point. The release of working capital is a cash inflow with no tax consequences. Disposing of an asset associated with a project also has cash consequences. At times, an asset may have a market value at the end of its life. The selling price less the cost of removal and cleanup produces a gross cash inflow. See Step 3 for how to calculate the tax effects associated with the disposal of an asset. Apply the Concepts A company invested $180,000 of working capital at the beginning of a project. At the end of the project, an asset has a selling price of $120,000. Its removal and cleanup costs total $30,000. The book value of the asset is $15,000. The tax rate is 40 percent. Required: Calculate the after-tax expected cash flow at the end of the project's life: $ -48,000 X
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