A Church wants to purchase a GMC Van for $12,000 in Year 0. It will provide income of $6000 real dollars (R$) every year for Years 1 and 2. At the end of Year 2, it will be sold at a market value of $3500 real dollars (R$ in Yr 0 dollars). Also,
? The GMC Van is depreciated by the straight-line method with a depreciable life of 6 years (assume zero salvage = 0 and ignore the half-year convention for depreciation calculation).
? The inflation rate is f = 3%
? The effective tax rate is t = 50%
? The after-tax, actual dollar MARR is ic = 10%.
4.1) Calculate the depreciation and book value for years 1 and 2.
End of Year Depreciation Book value
4.2) Calculate the ATCF for the capital gain (or loss) when the GMC Van is sold at the end of year 2.
Capital Gain (or Loss) =
Tax Liability (or Credit) =
ATCF for sale of asset =
4.3) Construct a table to convert from before-tax cash flow in real dollars BTCF (R$) to after-tax cash flow in actual dollars ATCF (A$).
Year BTCF(R$) BTCF (A$) Depreciation Taxable Inc. Tax@50% ATCF (A$)
0 N/A N/A N/A
NOTE: Use line 2a for the capital gain or loss in this cash flow.
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The solution calculates before-tax cash flow in real dollars BTCF (R$) and after-tax cash flow in actual dollars ATCF (A$) for the purchase of a GMC van.