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Computing the terminal-year FCF: Miles Cyprus Corp. purchased a truck that currently has a book value of $1,000. If the firm sells the truck for $5,000 today, then what is the amount of cash that it will net after taxes if the firm is subject to a 30 percent marginal tax rate?

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jepessoa

Answer:

$3,800

Explanation:

Miles Cyrus bought the truck for $1,000 and then sold it for $5,000:

The selling price of the truck is =                  $5,000

The cost basis of the truck is =                     ($1,000)

Net capital gain is =                                        $4,000

capital gains taxes is $4,000 x 30% = $1,200

The terminal year future cash flow is = $5,000 - $1,200 = $3,800