Question

You purchased a machine for $ 1.04 million three years ago and have been applying​ straight-line depreciation to zero for a​ seven-year life. Your tax rate is 40 %. If you sell the machine today​ (after three years of​ depreciation) for $786,000​ what is your incremental cash flow from selling the​ machine?

Answer 1

Annual depreciation=(Cost-Salvage value)/Useful Life

=(1,040,000/7)=$148,571.4286/year

Hence book value as on date of sale=Cost-Accumulated depreciation

=$1,040,000-($148,571.4286*3)

=$594,285.7143

Hence gain on sale=$786000-$594,285.7143=$191,714.2857

Hence incremental cash flow=Sale proceeds-(gain on sale*Tax rate)

=$786000-($191,714.2857*0.4)

=$709,314.29(Approx).