Computing the terminal-year FCF: Miles Cyprus Company purchased a truck that currently has a book value of $1,000. If the company sells the truck for $5,000 today, then what is the amount of cash that it will net after taxes if the company is subject to a 30 percent company tax rate?

Question

Quizplus · Accepted Answer

The company will recognize a gain of $4,000 ($5,000 sales price - $1,000 book value) which will be subject to a 30% tax rate. Therefore, the company will have a tax liability of $1,200 ($4,000 x 0.30). The amount of cash that the company will net after taxes is $3,800 ($5,000 - $1,200).

Computing the Terminal-Year FCF: Miles Cyprus Company Purchased a Truck