Question

You purchased a machine for $1.13 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 21%. If you sell the machine today (after three years of depreciation) for $729,000, what is your incremental cash flow from selling the machine?

Answer 1

Solution :-

Depreciation Every Year = $1,130,000 / 7 = $161,428.57

Now Book Value of Machine now ( After 3 years of Use ) = $1,130,000 - ( 3 * $161,428.57 ) = $645,714.29

Now Machine Sold today for = $729,000

Gain on sale on Machine = $729,000 - $645,714.29 = $83,285.71

Now tax on Gain on Sale = $83,285.71 * 0.21 = $17,490

Now After tax salvage Value = $729,000 - $17,490 = $711,510

Therefore , Incremental cash flow from selling the machine = $711,510

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