Abbott placed into service a flexible manufacturing cell costing $840,000 early

Question

Abbott placed into service a flexible manufacturing cell costing $840,000 early this year for production of their analytical testing equipment. Gross income due to the cell is expected to be $740,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDs, and the cell is in the 7-year property class, calling for a depreciation percentage of 14.29% or $120,036, in the 1st year. Half of the cell cost is financed at 11% ith principal aid back e a a un over 5 years. The 1st ears interest is therefore $46,200, while the principal payment is $84,000 a. Determine the taxable income for the 1st year. $ b. Determine the tax paid due to the cell during the 1st year using a 40% marginal tax rates c. Determine the after-tax cash flow for the 1st year. $ Round your answer to the nearest whole dollar. Tolerance is +/-1.

Explanation / Answer

a) Gross income = 740000

deductable expenses = 465000

depreciation = 120036

1st yr intrest = 46200

Where according US revenue deductable expanses, depreciation, loans are all non taxable incomes.

So

Taxable income = Gross income - ( depreciation + deductable expenses + loan intrest)

taxable income = 740000 - (465000 + 120036 + 46200)

Taxable income = 740000 - 631236

Taxable income = 108764$

b) Tax paid = Taxable income x marginal tax rate

marginal tax rate = 40% = 0.40

Tax paid = 108764 x 0.4 = 43505.6$

c) Cash flow after tax = CFAT = taxable income + depreciation + loan intrest

CFAT = 108764 + 120036 + 46200 = 275000$

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