8 years ago, a new machine cost $7 million to purchase and an additional $460,000 for the installation. The machine was to be linearly depreciated to zero over 20 years.

The company has just sold the machine for $4.2 million, and its marginal tax rate is 25%.

Part 1

What is the annual depreciation?

Correct

Initial book value: BV₀ = Purchase price + Cost of installation = 7,000,000 + 460,000 = 7,460,000

Annual depreciation: D = BV₀ / N = 7,460,000 / 20 = 373,000

Attempt 1/5 for 10 pts.

Part 2

What is the current book value?

Correct

Accumulated depreciation: AD = Number of years since purchase * Annual depreciation = 8 * 373,000 = 2,984,000

Remaining book value: BV₈ = BV₀ - AD = 7,460,000 - 2,984,000 = 4,476,000

Part 3

What is the net salvage value?