Final answer:
To estimate the net cash flow from the salvage value of the building if XYZ Consulting decides to sell it, we need to calculate the accumulated depreciation. Using the straight-line depreciation method, we find that the accumulated depreciation as of April 21, 2014, is $15,000. Subtracting the accumulated depreciation from the sale price of $1,437,953 gives us a net cash flow from salvage value of $1,422,953.
Step-by-step explanation:
To estimate the net cash flow from the salvage value of the building, we need to calculate the accumulated depreciation. The formula for straight-line depreciation is:
Depreciation Expense = (Purchase Cost - Salvage Value) / Useful Life
Given that the purchase cost was $786,850 and the salvage value is $1,000,000, and the building has been in use since June 5, 2010, we need to calculate the useful life. It has been in use for 34 years from 2010 to 2040. Therefore, the useful life is 34 years.
Using the formula, we can calculate the annual depreciation:
Annual Depreciation = (786,850 - 1,000,000) / 34 = $5,000
Next, we determine the accumulated depreciation as of April 21, 2014. From June 5, 2010, to April 21, 2014, there are 3 years of depreciation.
Accumulated Depreciation = Annual Depreciation * Years of Depreciation = $5,000 * 3 = $15,000
Finally, to estimate the net cash flow from the salvage value, we subtract the accumulated depreciation from the sale price:
Net Cash Flow from Salvage Value = Sale Price - Accumulated Depreciation = $1,437,953 - $15,000 = $1,422,953