Ask Question
30 May, 00:23

A property is sold for $5,100,000 with selling costs of 3% of the sales price. The mortgage balance at the time of sale is $3,600,000. The property was purchased 5 years ago for $4,820,000. Annual depreciation allowances of $153,016 have been taken. If the tax rate is 28%, what is the after-tax cash flow from sale of the property?

Other Answers to this question are incorrect on this website. Question copied from online book.

Here is the answer choices:

(A) $1,184,062

(B) $969,840

(C) $1,347,000

(D) $1,097,218

+4
Answers (1)
  1. 30 May, 02:26
    0
    Option (d) is correct.

    Explanation:

    Net sales:

    = Selling price - Selling cost

    = $5,100,000 - (0.03 * $5,100,000)

    = $5,100,000 - $153,000

    = $4,947,000

    Gain on sale:

    = Net sales - (Cost - Depreciation)

    = $4,947,000 - [$4,820,000 - (5 * $153,016) ]

    = $4,947,000 - ($4,820,000 - $765,080)

    = $4,947,000 - $4,054,920

    = $892,080

    Tax on capital gain:

    = Tax rate * Gain on sale

    = 0.28 * $892,080

    = $249,782.40

    After-tax cash flow from sale of the property:

    = Net sales - Tax on capital gain - Mortgage balance

    = $4,947,000 - $249,782.40 - $3,600,000

    = $1,097,218
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A property is sold for $5,100,000 with selling costs of 3% of the sales price. The mortgage balance at the time of sale is $3,600,000. The ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers