Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding m

Question

Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding machine for producing Crazy Rubber, a children's toy that is soft, pliable but also bouncy. The machine will increase EBITDA by $215,000 per year for the next two years. Assume that operating cash flows occur at the end of each year. The machine's purchase price is $260,000 and the salvage value at the end of two years is $46,800. The machine is classified as 3-year property. To run the Crazy Rubber production line the company will need to purchase an inventory of polydimethylsiloxane and boric acid for a total cost of $15,000. The MACRS depreciation rates for the first two years are 33.33% and 44.45%. What is the book value of the machine at the end of the second year of operations?

Calculate the depreciation schedule for 2 years below:(Round to the nearest dollar.)

Depreciation Schedule Year 1 Year 2 Original Cost ( Basis) $ $ MACRS Rates ( 3- year) 0.3333 0.4445 Accumulated Depreciation $ $ Ending Book Value $ $

Explanation / Answer

book value of the machine at the end of the second year of operations = 57772

Year1 Year2 original cost 260000 260000 MACRS Rates ( 3- year) .3333 .4445 Depreciation 260000*.3333=86658 115570   [260000*.4445] Accumulated Depreciation 86658 86658+115570= 202228 Ending Book Value 260000-86658= 173342 260000-202228= 57772

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