You purchased a machine for 

​$1.071.07 

million three years ago and have been applying​ straight-line depreciation to zero for a​ seven-year life. Your tax rate is 

20 %20%. 

If you sell the machine today​ (after three years of​ depreciation) for 

​$766 comma 000.00766,000.00​, 

what is your incremental cash flow from selling the​ machine?

Question content area bottom

Part 1

Your total incremental cash flow will be 

​$enter your response here. 

 ​(Round to the nearest​ cent.)

To calculate the incremental cash flow from selling the machine, we need to follow these steps:

### Step 1: Calculate the book value of the machine after three years
Straight-line depreciation means that the machine's value depreciates evenly over its useful life. The machine was purchased for $1,071,070, and it has a seven-year life, so the annual depreciation is:

\[
\text{Annual Depreciation} = \frac{\text{Purchase Price}}{\text{Useful Life}} = \frac{1,071,070}{7} = 153,010 \, \text{per year}
\]

After three years of depreciation:

\[
\text{Total Depreciation} = 153,010 \times 3 = 459,030
\]

The book value of the machine after three years is:

\[
\text{Book Value} = \text{Purchase Price} - \text{Total Depreciation} = 1,071,070 - 459,030 = 612,040
\]

### Step 2: Calculate the gain or loss from the sale
The machine is sold for $766,000, and the book value is $612,040, so the gain from the sale is:

\[
\text{Gain} = \text{Sale Price} - \text{Book Value} = 766,000 - 612,040 = 153,960
\]

### Step 3: Calculate the tax on the gain
The tax rate is 20%, so the tax on the gain is:

\[
\text{Tax on Gain} = 153,960 \times 0.20 = 30,792
\]

### Step 4: Calculate the incremental cash flow
The incremental cash flow is the sale price minus the tax on the gain:

\[
\text{Incremental Cash Flow} = \text{Sale Price} - \text{Tax on Gain} = 766,000 - 30,792 = 735,208
\]

### Final Answer:
The total incremental cash flow from selling the machine is **$735,208**.

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Do you need more details or have any questions?

### Related Questions:
1. How would the cash flow change if the machine had been sold at a loss?
2. What is the significance of straight-line depreciation in this context?
3. How would a different tax rate impact the incremental cash flow?
4. What happens if the machine is sold after 5 years instead of 3?
5. How would switching to double-declining balance depreciation affect the calculation?

**Tip**: Always separate the gain or loss from the book value when calculating taxes on an asset sale!

You purchased a machine for $1,071,070 three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 20%. If you sell the machine today (after three years of depreciation) for $766,000, what is your incremental cash flow from selling the machine?

Learn how to calculate the incremental cash flow from selling a machine using straight-line depreciation and considering tax implications. The problem involves a machine purchased for $1,071,070, depreciated over seven years, and sold for $766,000 after three years. Includes step-by-step calculations on depreciation, book value, gain, and tax impact.

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