Joined: 26 Jan 2012
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Posted: 15 Jun 2012 at 08:38 | IP Logged
Hi ArcSine! Thank you so much, i finally undersatnd the concept!!!! Thank you X 1000000000000000000.
BTW, so if we have a loss of 900, then we will have a tax saving of 360. In this case, we will use a 1000+360 =1360 as our cash flow computation. Right?
Joined: 14 Jun 2012 Location: United States
Online Status: Offline Posts: 10
Posted: 15 Jun 2012 at 09:13 | IP Logged
That's exactly correct; the firm could presumably deduct the 900 disposition loss on its tax return, resulting in either an increase in its total tax refund by 360, or a reduction of 360 in its tax obligation on other income. Either way, the 360 is considered a cash inflow upon disposition of the asset, in addition to the actual cash proceeds from selling the asset.
(Technically speaking, of course, the firm wouldn't receive the 360 tax benefit right away---the tax return would have to be filed, etc. But textbook problems typically make the simplifying assumption that the 360 is a cash inflow as of the asset's disposition date, as if you receive the tax savings at the same time as you receive the 1,000 from the purchaser of the asset.)
I'm glad it helped a bit, and best of success with your studies.
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Topic: NPV concept
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