Bosworth Industries has decided to terminate a table manufacturing project and sell the machine used to produce the tables.The machine was purchased five years ago for $280,000.It has been depreciated using straight- line depreciation over a seven- year period.Bosworth has an offer from another table manufacturer to purchase the machine for $90,000.If Bosworth pays 30% company tax,what will be the after- tax cash flow generated by the sale of the machine?

Question

Quizplus · Accepted Answer

The machine was purchased for $280,000 and has been depreciated over a seven-year period. Therefore, the depreciation expense for each year is $280,000 / 7 = $40,000. The machine has been depreciated for five years, so the accumulated depreciation is $40,000 * 5 = $200,000. The book value of the machine is therefore $280,000 - $200,000 = $80,000. The machine is being sold for $90,000, which is a gain of $90,000 - $80,000 = $10,000. The company tax rate is 30%, so the after-tax cash flow generated by the sale of the machine is $10,000 * (1 - 0.3) = $7,000.

Bosworth Industries Has Decided to Terminate a Table Manufacturing Project