I know the answer to this question should be 6,520,000. Could someone show me ho
ID: 2750263 • Letter: I
Question
I know the answer to this question should be 6,520,000. Could someone show me how to get this answer because I have another similar problem.
Your company has just agreed to sell one of its factories for 8,200,000. You built the factory for 5,000,000 2 years ago. You have been depreciating the factory straight line over its useful life of 10 years. If the tax rate is 40%, what will your cash flow on the sale of the factory be? (please round to the nearest dollar and please do not include commas in your answer)
Comment
Explanation / Answer
Determination of the cash flows from the factory is as follows:
Particulars
Amount($)
Sale of factory
8200000
Less:
Cost of factory
5000000
Less:
Depreciation
1000000
Book value
4000000
Net gain
4200000
Less:
Tax @40%
1680000
Net income
2520000
Add:
Depreciation
1000000
Cash flows from the factory
3520000
Thus, the cash flows are $3,520,000.
Notes:
Particulars
Amount($)
Sale of factory
8200000
Less:
Cost of factory
5000000
Less:
Depreciation
1000000
Book value
4000000
Net gain
4200000
Less:
Tax @40%
1680000
Net income
2520000
Add:
Depreciation
1000000
Cash flows from the factory
3520000