Question

You purchased a machine for $1.08 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 $780,000, what is your incremental cash flow from selling the machine?

Your total incremental cash flow will be $ ____ . (Round to the nearest cent.)

Answer 1

$ 714,857.14

Step-1:Calculation of book value at 3 year end
Cost		$ 1,080,000.00
Accumulated depreciation	$    462,857.14
Book Value at year end 3	$    617,142.86
Working:
Straight Line Depreciation	=	(Cost - Salvage Value)/Useful Life
	=	(1080000-0)/7
	=	$    154,285.71
Accumulated depreciation for 3 years	=	$    154,285.71	*	3
	=	$    462,857.14
Step-2:After tax sale from asset
After tax sale	=	Sales Value -((Sales Value - Book Value)*Tax Rate)
	=	780000-((780000-617142.86)*40%)
	=	$    714,857.14