Telstar Communications is going to purchase an asset for $380,000 that will prod

Question

Telstar Communications is going to purchase an asset for $380,000 that will produce $180,000 per year for the next four years in earnings before depreciation and taxes. The asset will be depreciated using the three-year MACRS depreciation schedule in Table 12–12. (This represents four years of depreciation based on the half-year convention.) The firm is in a 35 percent tax bracket. Fill in the schedule below for the next four years. (Input all amounts as positive values. Round your answers to the nearest whole dollar amount.)

Year 1 Year 2 Year 3 Year 4   Earnings before depreciation and taxes $    $    $    $      Depreciation                  Earnings before taxes $    $    $    $      Taxes                  Earnings after taxes $    $    $    $      Depreciation                  Cash flow $    $    $    $      

Explanation / Answer

Particulars

Particulars

Year 1 Year 2 Year 3 Year 4 Earnings before depreciation and taxes 180000 180000 180000 180000 Less: Depreciation (33.30%, 44.50%, 14.80% and 7.40%) 126540 169100 56240 28120 Earnings before taxes 53460 10900 123760 151880 Less: Taxes @ 35% 18711 3815 43316 53158 Earnings after taxes 34749 7085 80444 98722 Add: Depreciation 126540 169100 56240 28120 Cash Flow 161289 176185 136684 126842

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