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You purchased a machine for $1.13 million three years ago and have been applying​ straight-line depreciation...

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 22% . If you sell the machine today​ (after three years of​ depreciation) for $778,000 ​, what is your incremental cash flow from selling the​ machine?

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Expert Solution

Incremental cash flow = Market value - tax(Market value - Book value)

Annual deprication = 1,130,000/7 = 161,428.57

Accumulated depreciation = 161,428.57*3 = 484,285.71

Book value after year 3 = 1,130,000 - 484,285.71 = 645,714.29

Incremental cash flow = 778,000 - 22%(778,000 - 645,714.29)

Incremental cash flow = 778,000 - 29,102.86

Incremental cash flow = 748,897.14

jeff jeffy answered 2 years ago
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