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

Question

Quizplus · Accepted Answer

The firm will net $3,800 after taxes. The sale results in a gain of $4,000 ($5,000 sale price - $1,000 book value). Tax on the gain is 30% of $4,000, which is $1,200. Therefore, the net cash from the sale after taxes is $5,000 - $1,200 = $3,800.

Computing the Terminal-Year FCF: Miles Cyprus Corp