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

Computation of Net Cash Inflow

Net Present Value

Year Income before depreciation Post Tax A Depreciation as per MACRS Tax Saving on Depreciation B Net Cash inflow per year A+B 1 69000 48300 18100 5430 53730 2 69000 48300 28960 8688 56988 3 69000 48300 17376 5212.80 53512.80 4 69000 48300 10426 3127.80 51427.80 5 69000 48300 10426 3127.80 51427.80 6 69000 48300 5212 1563.60 49863.60

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