How terminal cash flows are calculated

Solution

The solution is as follows −

Initial investment = Rs. 25000000/-
Disposed value by analyst = Rs.500000/-
Book value = Rs.375000/-
Tax rate = 25%

• Tax rate for disposal => (500000 – 375000) * 25%

                    => 125000 * 25%

                    => Rs.31250/-

• After deducting taxes => 500000 – 31250

                    => Rs.468750/-

Terminal cash flows = after deducting taxes + working capital recovered

                    => 468750 + 500000

                    => Rs.968750/-