Question8 A machine which was bought 3 years ago for $10,000 is depreciated on a straight-line basis over 5 years. If the corporate tax rate is 32% and the machines is sold for $4,500, what is the free cash flow for the sale, i.e. what is its after-tax salvage cash flow? The after-tax salvage cash flow is $[input] (Answer to the nearest 1 dollar) Maximum marks: 10 Flag question undefinedShort answer
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Question8 A machine which was bought 3 years ago for $10,000 is depreciated on a straight-line basis over 5 years. If the corporate tax rate is 32% and the machines is sold for $4,500, what is the free cash flow for the sale, i.e. what is its after-tax salvage cash flow? The after-tax salvage cash flow is $[input] (Answer to the nearest 1 dollar) Maximum marks: 10 Flag question undefinedShort answer

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BlackTom AI · Accepted Answer

First, determine the annual depreciation under straight-line: cost 10,000 over 5 years gives annual depreciation of 10,000 / 5 = 2,000 per year.
Next, after 3 years, accumulated depreciation = 2,000 × 3 = 6,000, so the book value at sale = original cost − accumulated depreciation = 10,000 − 6,000 = 4,000.
The machine is sold for 4,500, so the gain on sale = sale price − book value = 4,500 − 4,000 = 500.
Tax on the gain at 32% = 500 × 0.32 = 160.
After-tax salvage cash flow (free cash flow from the sale) = sale price − taxes = 4,500 − 160 = 4,340.
Thus, the after-tax salvage cash flow is 4,340 (rounded to the nearest dollar).