(Solved):You purchased a machine for $1.1 million three years ago and have been applying straight-line…

 

Question

You purchased a machine for $1.1 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 38%. If you sell the machine today (after three years of depreciation) for $700,000, what is your incremental cash flow from selling the machine?

 

EXPERT ANSWER

Cost of machine= $1,100,000

Less: Salvage value=$0

Depreciation Amount= $1,100,000

Useful Life= 7 years

Depreciation per annum= $157,142.86

Book value at the end of 3rd

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