Question

Molly is considering opening a Campus Delivery business. The initial investment for the business is $263,000, which includes purchasing delivery vehicles and other investments. For tax purposes, the projected salvage value of the delivery vehicles is $25,000. The government requires depreciating the vehicles using the straight-line method over the business’s life of 10 years. Molly is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will generate an annual after-tax cash inflow of $54,000 from the operation. She now needs your help to estimate the net cash inflow that she will receive from selling the delivery vehicles at the end of 10 years.

In the best-case scenario, Molly can sell the vehicles at the end of 10 years for $30,000. Assuming the tax rate of 25%, what is the net after-tax cashflow Molly will receive from selling her delivery vehicles at the end of 10 years?

Multiple Choice

• $ 3,750

• $30,000

• $23,750

• $28,750

• $31,250

Answer 1

Therefore, net after tax cash flows at the end of 10 years from selling her delivery vehicle =$28750