1. A proposed chemical plant has the following projected revenues and operating
ID: 2819457 • Letter: 1
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1. A proposed chemical plant has the following projected revenues and operating expenses in millions of dollars: Year Annual Revenue Annual operating 7.0 10.0 15.0 20.0 22.5 24.0 25.0 25.0 25.0 25.0 expenses 4.0 5.6 6.8 7.8 8.8 9.6 10.0 10.0 10.0 10.0 2 4 10 The fixed capital investment for the plant is $50 million and the working capital is $7.5 million. (a) Assuming that all of the fixed capital investment can be depreciated. Using a MACRS depreciation schedule with a class life of 5 years, complete the following table: Depreciation Federal Allowance Taxes Net Profits Returned Gross Profits Year Working Capital $7.5 million 10 Note: Use a 21% federal tax rate. If the depreciation allowance is greater than the gross profits, then the company will deduct the allowance from some other source of income. f the depreciation allowance is greater than the gross profits, then enter a negative value for the federal taxes on the table.Explanation / Answer
i ii iii=i-ii iv=note 1 v=iii-iv vi=v*21% vii=v-vi viii year Annual revenue Annual expenses Gross profit Depreciation allowance Profit before tax Tax @ 21% Net profit Required working capital 1 7 4 3 10 -7 -1.47 -5.53 0 2 10 5.6 4.4 16 -11.6 -2.436 -9.164 0 3 15 6.8 8.2 9.6 -1.4 -0.294 -1.106 0 4 20 7.8 12.2 5.76 6.44 1.3524 5.0876 0 5 22.5 8.8 13.7 5.76 7.94 1.6674 6.2726 0 6 24 9.6 14.4 2.88 11.52 2.4192 9.1008 0 7 25 10 15 15 3.15 11.85 0 8 25 10 15 15 3.15 11.85 0 9 25 10 15 15 3.15 11.85 0 10 25 10 15 15 3.15 11.85 7.5 Note -1 Depreciation schedule Depreciation Schedule: MACRS Method Year Rate Depreciation* Accumulated Depreciation Book Value 0 $0.00 $0.00 $50.00 1 20.00% $10 $10 $40 2 32.00% $16 $26 $24 3 19.20% $10 $36 $14 4 11.52% $6 $41 $9 5 11.52% $6 $47 $3 6 5.76% $3 $50 $0 *Depreciation = 50million*rate for respective year
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