1. Goodwill Industries purchased a computerfor $11,000,which it will depreciate
ID: 2648760 • Letter: 1
Question
1. Goodwill Industries purchased a computerfor $11,000,which it will depreciate straight line over five years to a $1,000 salvage value. The computer will then be sold atthat price. The company's marginal tax rate is 40 Calculate the cash flows associated with the computer from its purchase to its eventual sale including the yearsin between. CHint: Depreciate the difference between the cost ofthe computer and the salvage value. At the end ofthe depreciation life there's a net book valueremaining equal to the salvage value) Period Initial Outlay Depreciation Tax @40% Salvage Totals P CFO CF1 CF2 CF4 CF5 Total Net outflowExplanation / Answer
The initial outlay is $11,000
The life is 5 years and there is straight line depreciation
Salvage Value = $1,000
Depreciation per year = (11,000 - 1,000) / 5 = $2,000
Now this depreciation is a cost. Hence the company will save tax due to this depreciation.
Period Initial Outlay Depreciation Tax Salvage Totals 0 $11,000 0 0 $11,000 1 0 $2,000 $800 $9,000 2 0 $2,000 $800 $7,000 3 0 $2,000 $800 $5,000 4 0 $2,000 $800 $3,000 5 0 $2,000 $800 $1,000 Total $11,000 $10,000 $4,000Related Questions
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