Manning Corporation is considering a new project requiring a $90,500 Investment

Question

Manning Corporation is considering a new project requiring a $90,500 Investment In test equipment with no salvage value. The project would produce $69,000 of pretax Income before depreclation at the end of each of the next six years. The company's income tax rate is 30%. In compiling its tax return and computing its ncome tax payments, the company can choose between the two alternative depreclation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1 Use a propriate factor(s) from the in the table. (FV of $1, PV of S1, FVA of $1 and PVA of tables provided. Straight-Line MACRS ear 1 Year 2 Year 3 Year 4 Year 5 Year 6 $ 9,050 18,100 18,100 18,100 18,100 9,050 $ 18,100 28,960 17376 10,426 10,426 5,212 Totals $90,500 $90,500

Explanation / Answer

Manning Corporation Net Cash Flow details Amt $ Year Income before depreciation MACRS depreciation Taxable Income Income Tax@30% Net Cash Flow Year 1                     69,000             18,100            50,900         15,270      53,730 Year 2                     69,000             28,960            40,040         12,012      56,988 Year 3                     69,000             17,376            51,624         15,487      53,513 Year 4                     69,000             10,426            58,574         17,572      51,428 Year 5                     69,000             10,426            58,574         17,572      51,428 Year 6                     69,000                5,212            63,788         19,136      49,864

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