Investments

Sajeetha R

Salvage value - 40,000 Less: dep. - 35,000 Stcg 5000 Tax rate (eg 20%) 1000 Net cash flow = 5000-1000 = 4000 If stcl arises , cash flow is negative or Zero

aditya yanamandra Faculty

First of all, it is not a short term. Even otherwise, if loss or gain arises we will have to take the net values of gain/loss (i.e., if gain then, sale value - tax on gain & if loss, sale value + tax saving on loss) In the given problem at the time of end of life of new machine there is no data mentioned about the sale price and hence the salvage value Rs.35,000 is assumed to generate no profit/no loss. & As the existing machine would be replaced at Year 0. The incremental TCI is nothing but the Net TCI of the new machine and Hence Rs. 35,000 is discounted to PV to arrive at the PV of Inc TCI