If the five year total of Net Income is $6550, what is the TOTAL rental revenue earned given the following scenario: Two friends contributed $6500 each to form a new business. The owners used the amounts contributed to purchase a machine for $6,000 cash. They estimated that the useful life of the machine was four years and the salvage value was $1,000. They rented out the machine to a customer for four years. Annual cash operating costs for insurance, taxes, and other items totaled $600 annually. At the end of the fourth year, the owners sold the equipment for $2400, instead of the $1,000 salvage value initially estimated. (Hint: Compute the total net income and the total cash flows other than cash flows with owners for the five-year period as a whole.)

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.