Equipment with a book value of $5,000 will be sold at the end of a project for a salvage value of $11,000. The tax rate is 25%. What is the tax effect resulting from the profit or loss from the sale of the equipment (where a negative number means tax is payable and a positive number means that there is a tax shield)?


A firm is considering a new project. If the project goes ahead, it will require the use of an existing warehouse owned by the company. If the project does not go ahead, the warehouse could be immediately rented out for $5000 per month. In relation to the use of the warehouse, what is the incremental free cash flow (i.e. how many dollars is the firm better or worse off) from proceeding with the project?

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To calculate the tax effect resulting from the profit or loss from the sale of the equipment we need ... View the full answer