Young Company received $18,000 cash from the sale of a machine that had a $13,000 book value. If the company is subject to a 30% income tax rate, the net cash flow to use in a discounted-cash-flow analysis would be:

Question

Quizplus · Accepted Answer

The net cash flow is calculated by taking the cash received ($18,000) minus the tax on the gain. The gain is $5,000 ($18,000 - $13,000), and the tax on the gain is $1,500 (30% of $5,000). Therefore, the net cash flow is $18,000 - $1,500 = $16,500.

Young Company Received $18,000 Cash from the Sale of a Machine