The following information applies to the questions displayed belowJ Manning Corp

Question

The following information applies to the questions displayed belowJ Manning Corporation is considering a new project requiring a $90,000 investment in test equipment with no salvage value. The project would produce $69,000 of pretax income before depreciation at the end of each of the next six years. The company's income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. FV of $1. PV of $1. FVA of $1 and PVA of $t (Use appropriste fectorts) from the tebles provided) Straight-Line MACRS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $18,000 9.000 18,000 18,000 18,000 18,000 28,800 17.280 10,368 10,368 5,184 9,000 $90,000 Totals$90,000 Section Break n of

Explanation / Answer

Net cash inflow

For year 1and 6 For year 2-5 Pretax income 69000 69000 less:depreciation -9000 -18000 Income before tax 60000 51000 less:tax( 38% of income before tax ) - 22800 -19380 Income after tax 37200 31620 Add:depreciation (non cash) 9000 18000 net cash inflow 46200 49620

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