Question

Samantha Adams, Inc., a beverage company, bought a machine that processes wheat at a cost of $3.00 million five years ago. The machine has been depreciated over the past five years, and the current book value is $979,627.00. The company decides to sell the machine now at its market price of $1.53 million. The marginal tax rate is 36.00 percent. What is the cash flow from selling the machine?

Answer 1

The cash flow from selling the machine

Gain on sale of asset = Salvage value of the plant asset - current book value as on the date of sale

= $1,530,000 - $979,627

= $5,50,373

Tax on Gain on sale of asset = Gain on sale of asset x Tax rate

= $550,373 x 36.00%

= $198,134.28

Therefore, the cash flow from selling the machine = Salvage value of the plant asset - Tax on Gain on sale of asset

= $1,530,000 - $198,134.28

= $1,331,865.72

“Hence, the cash flow from selling the machine will be $1,331,865.72”