22 Suppose you are evaluating an asset that costs 550000 tha

22. Suppose you are evaluating an asset that costs 550,000 that you expect to sell in five years. Suppose further that the tax basis of the asset for tax purposes will be $15,000 after five years and that the firm\'s tax rate is 45% and capital gains tax rate is 35%. If the firm expects to sell the asset for $60,000 in five years What are the expected cash flows from disposing this asset? Selo 6000 Cas 50 p00

Solution

Gain on sale of asset= Sales price - Tax basis(book value)

                    = 60000 - 15000

                   = 45000

Tax on gain = 45000*.35 = 15750

Expected cash flow = Sale value - tax on gain

                 = 60000- 15750

                  = $ 44250