# After-tax cash flow

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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

0 ------

1

2

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

1

2

2a N/A

NOTE: Use line 2a for the capital gain or loss in this cash flow.

Please see attached for full question.

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##### Solution Summary

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.

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