Company L sold an inventory item to Firm M for $40,000. Company L’s marginal tax rate is 35 percent. In each of the following cases, compute Company L’s after-tax cash flow from the sale:
a. Firm M’s payment consisted of $10,000 cash and its note for $30,000. The note is payable two years from the date of sale. Company L’s basis in the inventory item was $15,700.
b. Firm M’s payment consisted of $5,000 cash and its note for $35,000. The note is payable two years from the date of sale. Company L’s basis in the inventory item was $47,000.
c. Firm M’s payment consisted of $40,000 cash. Company L’s basis in the inventory item was $18,000.
d. Firm M’s payment consisted of $40,000 cash. Company L’s basis in the inventory item was $44,000.