# A new machine will be purchase

A new machine will be purchased today for \$65,000, used for 4years and sold. The machine will be straight line depreciated for 8years. The anticipated market value of the alpha machine in 4 yearsis \$24,000. The tax rate is 31%.

a) Calculate the book value of the machine after 4 years.

b) Calculate the gain or loss on sale of the alpha machine.Calculate the tax effect of the gain or loss.

c) What is the termination cash flow associated with the sellingthe alpha machine in 4 years

 Ans 1) Computation of book value after 4year annual depreciation = Cost / usefulllife 65000/8 8125 Book value after 4 year = 32500 65000-8125*4 ans = \$     32,500 Ans 2) Computation of gain orloss Sales price = 24000 book value = \$     32,500 Loss on sale = \$       8,500 ans = loss \$       8,500 Ans 3) Computation of terminal cashflow Sales price = 24000 Tax shield on loss = 2635 8500*31% Terminal cash flow= 26635 Ans = 26635

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