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You purchased a machine for $ 1.08 million three years ago and have been applying​ straight-line...

You purchased a machine for $ 1.08 million three years ago and have been applying​ straight-line depreciation to zero for a​ seven-year life. Your tax rate is 40 %. If you sell the machine today​ (after three years of​ depreciation) for $780,000​, what is your incremental cash flow from selling the​ machine?

Your total incremental cash flow will be (...) ​(Round to the nearest​ cent.)

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Answer #1

Cost of Machine = $1,080,000

Book value of depreciation after 3 years = $1,080,000 - ( $1,080,000 *3 yrs/ 7yrs)

Book value of depreciation after 3 years = $1,080,000 - $462,857.14

Book value of depreciation after 3 years = $617,142.86

Sale value = $780,000

Gain on sale of machine = $780,000 - $617,142.86

Gain on sale of machine = $162,857.14

Tax on gain = $162,857.14 * 40%

Tax on gain = $65,142.86

Net Incremental cash flow = $162,857.14 - $65,142.86

Total Incremental cash flow = $97,714.29

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