Problem $12$

ntro

$8$ years ago, a new machine cost $$5,000,000$ to purchase and an additional

$$550,000$ for the installation. The machine was to be linearly depreciated to zero

over $25$ years.

The company has just sold the machine for $$3,000,000,$ and its marginal tax rate

is $25\%.$

Part $1$

What is the annual depreciation?

Correct $$

Initial book value:

$B{V}_0=$ Purchase price $+$ Cost $of$ installation

$=5,000,000+550,000$

$=5,550,000$

Annual depreciation:

$D=B\frac{V_0}{N}$

$=5,550,\frac{000}{25}$

$=222,000$

Part $2$

What is the current book value?