A new machine will be purchase
January 18th, 2023
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
Answer:
| 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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