Use the following information to answer the question(s)below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 35% tax rate and has a cost of capital of 10%.
-Assume that Casa Grande Farms is planning to sell the tractors after two years,when its book value is $119,988,for a total price of $180,000.What is the effect on free cash flow in the year it is sold?
A)A cash inflow of $60,012
B)A cash outflow of $60,012
C)A cash inflow of $39,008
D)A cash outflow of $39,008

Question

Quizplus · Accepted Answer

C)Gain on sale = $180,000 - $119,988 = $60,012;tax on gain = 0.35 × 60,012 = 21,004
Cash inflow = $60,012 - 21,004 = $39,008

Use the Following Information to Answer the Question(s)below