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FINC 498

FINC 498

Laurence bought a classic car for $40,000 as a business investment opportunity. He was allowed to depreciate it over 10 years and take the amount as a business tax deduction on his return. At the end of 10 years, the car was sold for $40,000. If Laurence was in the 38 percent marginal tax bracket and could earn 8 percent after tax on the cash flow generated, what was his cumulative cash benefit after sale on this transaction?

(Round your answers to the nearest whole number. Omit the comma and "$" sign in your response.)

(a) Yearly Deductible Depreciation =

(b) Yearly Tax Benefit =

(c) Cumulative Tax Benefit (future value) =

(d) Tax on $40,000 Capital Gain =

(e) Net Cash earned [(c) - (d)] =

This question was answered on Jun 24, 2016.Purchase Solution @ 29.44 USD
FINC 498
a) Purchase price of the car = $40000. Life of the car = 10 years Yearly Depreciation = 40000/10 = $4000. b) Yearly tax benefit = 4000*0.38 = $1520. c) Cumulative Tax Benefit (Future Value) = Cash flow * [(1 r) ^n – 1]/r = 1520 * [(1

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