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13 July, 10:47

Assume an asset cost $72,800 and has a current book value of $42,760. The asset is sold today for $32,900 cash. The firm's tax rate is 21 percent. As a result of this sale, the firm's net cash flow: 1. will increase by more than $32,900. 2. will increase by less than $32,900. 3. will increase by exactly $32,900 4. will decrease by the difference between the $42,760 and the $32,900.

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  1. 13 July, 12:50
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    As a result of this sale, the firm's net cash flow will increase by more than $32,900. The right option is 1.

    Explanation:

    According to the given we have the following:

    asset cost = $72,800

    current book value=$42,760

    sale=$32,900

    Therefore, loss=current book value-sale

    loss=$42,760-$32,900

    loss=$9,860

    tax saving on loss=$9,860*21%=$2,070.60

    Therefore, net cash flow=$32,900+$2,070.60

    net cash flow=$34,970.60

    As a result of this sale, the firm's net cash flow will increase by more than $32,900
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