In calculating the tax portion of the ERAT figure, what do you do with a loss? Do you multiply the amount of the loss by the tax rate on recaptured deprecation and add as part of ERAT (as a credit to ERAT)?
Please help! An example follows. Thanks
Imagine the following hypothetical question:
Marginal tax rate: 30%
Tax on recaptured depreciation: 35%
Sale price: $45,000,000
Net sale price: $41,850,000
Purchase price: $50,000,000
Net book value: $43,750,000
Net sales price - net book value = $41,850,000 - $43,750,000 = loss
How do you treat the loss as part of ERAT?