A large, profitable corporation with net income exceed $20 million is considerin

Question

A large, profitable corporation with net income exceed $20 million is considering the installation of a new machine that cost $100,000 with the expected salvage value of $20,000 after 4 years of useful life. a) Determine the depreciation "dt" and the book value BV" for the first two years of depreciation methods in the table. Assume 3-yr property class for MACRS depreciation. b) The company cxpccts the net income of $38,000 per year from this new machine and plans to dispose it for the salvage value at the end of year 4. If the straight line depreciation is elected by the company, complete the table below and determine the after cash flow for this investment.

Explanation / Answer

Depreciation per year = 80000/4 = 20000 Per yaer Before Tax Cash Flows Depreciation Taxable Income Tax After Tax Cash Flows Income ( Rate not given) -100000 58000 20000 38000 0 58000 58000 20000 38000 0 58000 58000 20000 38000 0 58000 78000 20000 58000 0 78000 a) Depreciation MACr Straight Line SOYD Year Dep BV Dep BV Dep BV 0 100000 100000 1 20000 80000 32000 68000 2 20000 60000 24000 44000

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