Example

Repeat Example 14.2 using straight-line depreciation, assuming a five-year life and no resale value for depreciation calculation. The aggregate tax rate for this case is 40%.

Solution:

Depredation per year J> -(500000 - OJ/5 = 100000

Step 1:

Calculate the annual net income after tax (IAT) for year 1.

Year Income Expense OP Depr. Taxable Income Tax

1 250000 100000 150000 100000 50000 20000

This is the tax due to the operating income. Now we have to calculate the effect of capital gain or loss.

Year Resale Book Value Capital Gain/Loss Tax On Cap G/L

1 350000 400000 -50000 -20000

We now calculate the net income after tax.

Total Tax IAT

0 150000

The cash flow then is

Therefore,

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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