Suppose you sell a fixed asset for $10,000 when its book value is $2,000. If your company's marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Question

Quizplus · Accepted Answer

The gain on the sale is $10,000 - $2,000 = $8,000. Taxes on the gain are 21% of $8,000 = $1,680. The after-tax cash flow is the sale price minus the taxes, which is $10,000 - $1,680 = $8,320.

Suppose You Sell a Fixed Asset for $10,000 When Its