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    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 ------

    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
    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.