What is the after-tax cash flow that results from the sale of a capital asset for $150,000? Assume that it has a book value of $100,000 and a 40% tax rate.
A)$150,000
B)$90,000
C)$130,000
D)$60,000
E)$170,000

Question

Quizplus · Accepted Answer

The gain on the sale of the capital asset is $50,000 ($150,000 sale price - $100,000 book value). Since the tax rate is 40%, the tax on the gain is $20,000 ($50,000 gain x 40% tax rate). The after-tax cash flow is calculated by subtracting the tax from the sale price: 
$150,000 sale price - $20,000 tax = $130,000 after-tax cash flow. Therefore, the best choice is C.

What Is the After-Tax Cash Flow That Results from the Sale