BUS 31AIE UNIVERSITY Managerial Finance XLS Group B8 Fall Semester 2017 CO Conte
ID: 2781030 • Letter: B
Question
BUS 31AIE UNIVERSITY Managerial Finance XLS Group B8 Fall Semester 2017 CO Content Discussions Assignments Quizzes V Grades ! Groups 3 Classlist Quiz 12- Capital Budgeting CF-Quiz Ashleigh Landers: Attempt 1 Question 1 (10 points) Edward's Manufactured Homes purchased some machinery 2 years ago for $319,000. These assets are classified as 5-year company is replacing this machinery today with newer machines that utilize the latest in technology The old machines are being sold for $160,000 to a foreign firm for use in its production facility in South America. What is the aftertax salvage value from this sale if the tax rate is 35 percent? $157,592 $153,820 $155,408 $152,312 $160,0o0 Save Question 2 (10 points) $220,000 for Hollister & Hollister is considering a new project. The project will require $500,000 for new fixed assets, inventory, and $4 has 0,000 for additional accounts receivable. Short-term debt is expected to increase by $200,000. The project a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of s to its original levelExplanation / Answer
Answer:
As per MACRS Depreciation Table, depreciation on asset classified as 5-year property for 1st is 20% and for 2nd year is 32%
Book Value of Machinery after 2 years = $319,000 * (1 - 0.20 - 0.32)
Book Value of Machinery after 2 years = $153,120
Sale Value = $160,000
There is Gain on Sale of Machinery, as Sale Value is more than the Book Value of the Machinery.
Gain on Sale of Machinery = $160,000 - $153,120 = $6,880
Tax on Gain on Sale of Investment = $6,880 * 35% = $2,408
After -Tax Cash Flow = $160,000 - $2,408
After- Tax Cash Flow = $157,592
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