Problem:
A machine cost $10 million when it was purchased by Loco Moco Corporation 5 years ago. The firm is currently planning to sell the machine at its market value of $5 million. Accumulated depreciation of the machine throughout the 5-year period was $7 million.
Required:
Question: If the marginal tax rate of the firm is 40%, what is the expected cash flow from salvaging the machine?
Note: Be sure to show how you arrived at your answer.