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20 April, 00:25

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

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  1. 20 April, 00:42
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    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
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