Question

A company invests $53,258 into a machine that has a useful life of 7 years and a predicted salvage value of $46 The company's revenue using the machine is $952,243. It also has $1,456 operating costs and $34maintenance costs. What is the company's taxable income at the end of year 1, assuming straight line (SLN) depreciation.

Answer 1

Taxable Income = Revenue - Operating Costs - Maintenance Cost - Depreciation

Depreciation for the machine needs to be calculated using Straight Line Depreciation, i.e. equal depreciation over life.

Depreciation/Year = (Initial value - Salvage Value)/Life

Depreciation/Year = (53,258 - 46)/7 = 7.601.71

Taxable Income = 952,243 - 1456 - 34 - 7601.71 = $943,151.29

{Have calculated taxable income based on the values given in question, tough values look slightly off - 1456 operating cost for a revenue of 952,243 - seems some value is missing or comma should actually be a decimal - let me know if that is the case with correct values and I can edit the answer}