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Assume that a company wants to incorprate the effect of taxes into their NPV analysis. The tax rate is 30%. In year 0, they would sell an old machine for the market value of $50,000. The current book value of this machine is $40,000. Note that cash flows in later years are unimportant for answering this question. Explain how the pre-tax cash inflow from the disposal in year 0, i.e., the $50,000, would be affected by the presence of taxes compared to the absence of taxes. It is sufficient if you indicate the direction of the change and explain why it would be the case.

Assume that a company wants to incorprate the effect of taxes into their NPV analysis. The tax rate is 30%. In year 0, they would sell an old machine for the market value of $50,000. The current book value of this machine is $40,000. Note that cash flows in later years are unimportant for answering this question. Explain how the pre-tax cash inflow from the disposal in year 0, i.e., the $50,000, would be affected by the presence of taxes compared to the absence of taxes. It is sufficient if you indicate the direction of the change and explain why it would be the case.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 1P
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Assume that a company wants to incorprate the effect of taxes into their NPV analysis. The tax rate is 30%. In year 0, they would sell an old machine for the market value of $50,000. The current book value of this machine is $40,000. Note that cash flows in later years are unimportant for answering this question.

Explain how the pre-tax cash inflow from the disposal in year 0, i.e., the $50,000, would be affected by the presence of taxes compared to the absence of taxes. It is sufficient if you indicate the direction of the change and explain why it would be the case.

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