Do all the problems. Include calculations and/or explanations in your answers wh
ID: 2643996 • Letter: D
Question
Do all the problems. Include calculations and/or explanations in your answers wherever appropriate. More credit will be given for correct reasoning than for correct arithmetic.
We are thinking of buying a truck. It will cost $20,000 and be subject to a 10% investment tax credit. It falls in the SACRS (30%, 20%, 20%, 15%, 15%) class. Our tax rate is 30%.
(a) Write the depreciation schedule.
(b) We will sell the truck after four years for $5,000. What after-tax cash flow will result from the sale?
(c) The truck will save us $6,000 per year in expenses. Write all the cash flows for this project from purchase to sale.
Explanation / Answer
Year
MACRS
Depreciation
1
30%
6000
2
20%
4000
3
20%
4000
4
15%
3000
5
15%
3000
Gain on sell =5000-3000=2000
Tax=2000*0.3=600
After tax cash flow=5000-Tax=5000-600=$4400
c)
Year
MACRS
Depreciation
Saving
Tax benefit= Dep*Tax
Cash flow= Saving*(1-T) +Dep*T
1
30%
6000
6000
1800
6000
2
20%
4000
6000
1200
5400
3
20%
4000
6000
1200
5400
4
15%
3000
6000
900
5100
5
15%
3000
6000
900
5100
Year
MACRS
Depreciation
1
30%
6000
2
20%
4000
3
20%
4000
4
15%
3000
5
15%
3000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.