Question

You have purchased a machine for $120,000 and are depreciating it using a three-year MACRS schedule. You are in a 30% tax bracket and will be able to sell the machine for $50,000 at the end of year four. Calculate your cash flow from the sale of this machine.A) $35,000B) $30,000C) $28,784D) $12,336

Answer 1

Answer:

The correct answer is A that is $35,000

Explanation:

Computing the cash flow from the sale of the machine:

Computing the profit:

Profit = Sale Price - Book Value

where

Sale price is $50,000

Book Value is $0

Profit = $50,000 - $0

= $50,000

After tax salvage value will be:

= Profit - Tax @30%

= $50,000 - $50,000 × 30%

= $50,000 - $15,000

= $35,000

This is the cash flow from sale of machine