Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540 000

Business Mar 04, 2021

Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540 000. These tractors are expected to generate EBITDA of $250 000 for each of the next three years. Casa Grande Farms has a 21% tax rate and has a cost of capital of 10%. Assume that Casa Grande Farms is planning to sell the tractors after two years, when their book value is $119 988, for a total price of $180 000. What is the net cash flow from this sale?

Expert Solution

Net Cash Flow From the Sale = $47,409.48

Step-by-step explanation

Net Cash Flow from the Sale = Selling Price - Book Value)*(1-Tax Rate)

= (180,000-119,988)*(1-21%)

= $47,409.48

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