CPAnet Forum: NPV concept

Active Topics

Memberlist

Help

BEC STUDY GROUP
CPAnet Forum : BEC STUDY GROUP

Topic: NPV concept (

Topic Closed)

Author

Message

<< Prev Topic | Next Topic >>

gjtseng
Contributor

Joined: 26 Jan 2012
Online Status: Offline
Posts: 51

Posted: 13 Jun 2012 at 00:04 \| IP Logged

hey everyone i have question on NPV, I know that we have to calculate the PV of the salvage value of the asset. Here is my question:

1. should we use the proceed from salvage

2. should we use the proceed from salvage minus basis of asset

If we are using 2, then what is the basis of asset? the book basis asset or tax basis asset

Please help me to figure this out!!! Thanks a lot !!

ArcSine
Newbie
Newbie

Joined: 14 Jun 2012
Location: United States
Online Status: Offline
Posts: 10

Posted: 14 Jun 2012 at 08:46 \| IP Logged

PV concepts rely on cash flow amounts and timing, rather than book or accounting amounts. As such, the PV of the expected salvage value would be determined from the expected cash proceeds of the disposition, +/- the tax liability or tax savings resulting therefrom (liability if the disposition results in a tax gain; savings if the disposition triggers a deductible loss).

Hence you'll need to use the tax basis of the asset, in comparison with the expected disposition proceeds or consideration, to figure the tax portion of the disposition cash flows.

gjtseng
Contributor

Joined: 26 Jan 2012
Online Status: Offline
Posts: 51

Posted: 14 Jun 2012 at 11:25 \| IP Logged

Thx ArcSine for your detail explanation. Let me make this clear. By the asset disposition, we will use the "proceed from disposition - tax basis" and we figure out the PV value of that amount as our cash inflow, right?

Also when we have a tax-bais means that we sell the assets before it is fullly depreciated, right?

Thank you for ur explain!!!!

ArcSine
Newbie
Newbie

Joined: 14 Jun 2012
Location: United States
Online Status: Offline
Posts: 10

Posted: 14 Jun 2012 at 13:37 \| IP Logged

Roger that, Gjtseng; if the asset has any positive (> 0) tax basis remaining upon its disposition date, then it wasn't fully depreciated for tax purposes.

It may indeed have some different book basis, if accounting depreciation was taken on the asset under a different method than the depreciation method used for tax purposes. If so, the asset will have an accounting gain or loss on disposition that differs from the taxable gain or loss.

But again, PV work is concerned solely with cash flows, so it's the cash proceeds of disposition, along with the tax liability or tax savings arising from the disposition's tax gain or loss, which form the relevant cash flows for PV computations.

gjtseng
Contributor

Joined: 26 Jan 2012
Online Status: Offline
Posts: 51

Posted: 14 Jun 2012 at 22:22 \| IP Logged

Hi ArcShine. Thank you for the explaination. ^^

I dunt know if i am too stupid or what.....can you explain again when u said "along with the tax liability or tax savings arising from the disposition's tax gain or loss, which form the relevant cash flows for PV computations"

So we assume, the tax rate is 40%, the proceed of the dispostion is $1000, and the tax basis is $100, so in order to caluculate the cash flow, we use 1000-100=900 , then we have 900 gain.....and what is next?

Hope I am not so troubling you, but thx again!!

Page of 2 Next >>

Printable version

You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum