Question

A. A Machine that originally cost $25,000 and was depreciated on a straight-line basis has one...

A. A Machine that originally cost $25,000 and was depreciated on a straight-line basis has one year of its expected 5-year life remaining. Assume a salvage value of $0. Its current market value is $12,000. The corporate average tax rate is 30% while the marginal tax rate is 34%. The gain or loss on selling the machine is _______. The cash flow from disposing the old machine is ________

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Answer #1

ANSWER:-

Given values

Cost = $25,000

Life year = 5

Depreciation using SLN = Cost/Life

= 25000/5

= 5000 pa

So In 4 yes, Accumulated Depreciation = 4*5000

= 20,000

So Book Value = 25000-20000

= 5000

Current Market Value =12000

Gain on selling the machine =12000-5000

=$7000

Now CF from Disposing Old Mach = Market Value - Tax*(Market Value-Book Value)

=12000 - 30%*(12000-5000)

=12000-30% * (7000)

=12000-2100

=9900

= $9,900

......................................................................

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