Question

You purchased a machine for $ 1.05$1.05 million three years ago and have been applying​ straight-line depreciation to zero for a​ seven-year life. Your tax rate is 35 %35%. If you sell the machine today​ (after three years of​ depreciation) for $ 745 comma 000$745,000​, what is your incremental cash flow from selling the​ machine? Your total incremental cash flow will be ​$nothing. ​(Round to the nearest​ cent.)

Answer 1

Book value = (purchase price)*remaining life/total life
= (1050000)*4/7
= 600000
After tax salvage value = selling price*(1-tax rate)+book value*tax rate
=745000*(1-0.35)+600000*0.35
=694250