The J. Harris Corporation is considering selling one of its old assembly machine

Question

The J. Harris Corporation is considering selling one of its old assembly machines. The machine, purchased for $30,000 five years ago, had an expected life of 10 years and an expected salvage value of zero. Assume Harris uses simplified straight-line depreciation, creating depreciation of $3,000 per year, and could sell this old machine for $35,000 Also assume a 34 percent marginal tax rate. (a). What would be the tax associated with this sale? (b). If the old machine were sold for $25,000 what would be the taxes associated with this sale? ( c ). If the old machine were sold for $15,000 what would be the taxes associated with the sale? (d). If the old machine were sold

Explanation / Answer

a> Cost of the machine 30000 Life of the machine in years 10 Capital Gain towards sle of machine=(35000-0) 35000 Depreciation per Year=30000/10 3000 Gain after depriciation 32000 Tax@34% 10880 b>Gain =(25000-3000) 22000 Tax@34% 7480 c>Gain=(15000-3000) 12000 Tax@34% 4080

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