Five years ago, Firm SJ purchased land for $122,000 with $12,200 of its own funds and $109,800 borrowed from a commercial bank. The bank holds a recourse mortgage on the land. For each of the following independent transactions, compute SJ’s positive or negative cash flow. Assume that SJ is solvent, any recognized loss is fully deductible, and SJ’s marginal tax rate is 35 percent. (Cash outflows should be indicated by a minus sign.)
a. SJ sells the land for $40,260 cash and the buyer’s assumption of the $99,800 principal balance of the mortgage. What is the Net cash flow?