Question

You purchased a machine for $ 1.19 million three years ago and have been applying​ straight-line depreciation to zero for a​ seven-year life. Your tax rate is 38 %. If you sell the machine today​ (after three years of​ depreciation) for $ 791 comma 000​, what is your incremental cash flow from selling the​ machine?

Answer 1

$748,820

Step-by-step explanation:

The computation of the incremental cash flow is shown below:

As we know that

Incremental cash flow = Sale price - (sale price - book value) × tax rate

where,

Sale price is $791,000

The book value is

= Purchase value - accumulated depreciation

= $1,190,000 - $1,190,000 ÷ 7 years × 3 years

= $1,190,000 - $510,000

= $680,000

So, the incremental cash flow is

= $791,000 - ($791,000 - $680,000) × 38%

= $791,000 - $42,180

= $748,820

We simply applied the above formula