Ivanhoe Potions, Inc., a pharmaceutical company, bought a machine at a cost of $2 million five...
Ivanhoe Potions, Inc., a pharmaceutical company, bought a machine at a cost of $2 million five years ago that produces pain-reliever medicine. The machine has been depreciated over the past five years, and the current book value is $724,000. The company decides to sell the machine now at its market price of $1 million. The marginal tax rate is 35 percent.
What are the relevant cash flows?
How do they change if the market price of the machine is $600,000 instead?
Homework Answers
| after tax cashflow = selling price*(1-tax rate)+book value*tax rate = |
selling price = 1000000
after tax cashflow = 1000000*(1-0.35)+724000*0.35=903400
selling price = 600000
after tax cashflow = 600000*(1-0.35)+724000*0.35=643400
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