Dillon, Inc., purchased a new machine for $60,000 on January 1, 2010. The machine is being depreciated

Question:

Dillon, Inc., purchased a new machine for $60,000 on January 1, 2010. The machine is being depreciated on a straight-line basis over five years with no salvage value. The book rate of return is expected to be 15 percent on the initial investment. The machine will generate a uniform cash flow. The firm’s tax rate is 25 percent.

Required

What is the expected annual pre-tax cash flow from operations from this investment?

(CPA Adapted)

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...