Question

444 CHAPTER 12: INCOME TAXES FOR CORPORATIONS Contribute net present worth of this investment.com Mukasa Ssemakula, Wayne State Univ 12-25 A firm has invested $400,000 in ment. They will depreciate the eau bonus depreciation with the balan MACRS, assuming a $50,000 salvac end of the 5-year useful life. The fir to have a before-tax cash flow, afte expenses of operation (except depreci $165,000 per year. The firm's combined tax rate is 28%. value, Assume (a) Co (b) Co MA ate University in car-washingeu he equipment by lry balance using Syte salvage Valve he firm is expect flow, after meeting depreciation, is combined corporate (5) Explain why the rate of return obtained in part (a) is different from the rate of return obtained in Problem 12-20. 12-22 A firm may invest in equipment that will be depreci- ated by double declining balance depreciation with conversion to straight-line depreciation in year 5. For depreciation purposes a $700,000 salvage value at the end of 6 years is assumed. But the actual value is thought to be $1,000,000, and it is this sum that is shown in the before-tax cash flow. A 12-29 (a) The cha $30 correct, and the equip 0.000 at the end os Before-Tax Cash Flow (in $1000) Year rate of return would the -$12,000 1.727 2,414 2.872 3,177 3.358 1.997 1,000 Salvage value FOSS A If the firm wants a 9% after-tax rate of return and its combined incremental income tax rate is 24%, determine by annual cash flow analysis whether the investment is desirable. (a) If the projected income is correct, and th ment can be sold for S100,000 at the years, what after-tax rate of return corporation receive from this venture? (b) Summarize the environmental impact of mercial car washing. Include how wash drainage is directed, how discharge sources treated (or not), the impacts of sediment, deter- gents, waxes, and heavy metals, and local/state policies/practices. 12-26 A mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 22% combined incremental tax rate. At the end of 5 years the mining company changed its method of operation and sold the production machinery for $40,000. During the 3 years the machinery was used, it reduced mite operating costs by $32,000 a year, before taxes. If the company MARR is 12% after taxes, was uk investment in the machinery a satisfactory one! 12-27 Zeon, a large, profitable corporation, is considering adding some automatic equipment to its producto facilities. An investment of $120,000 will produce an annual benefit of $40,000. If the firm uses ou bonus depreciation with the balance using MACRS depreciation, an 8-year useful $12,000 salvage value, will it obtain the de 12% after-tax rate of return? Assume equipment can be sold for its $12.000 salvage at the end of the 8 years. Also assume a 20 tax rate for state and federal taxes combi 12-30 A A che $550, MAC the c! comp also vesse of the and a 249 after- Bonus Depreciation Assume all bonus depreciation occurs in Year 1 unless otherwise stated. 12-23 A firm has invested $60,000 in machinery with a 5-year useful life. The machinery will have no salvage value, as the cost to remove it will equal its scrap value. The uniform annual benefits from the machinery are $15,000. For a combined 45% income tax rate, and 100% bonus depreciation, compute the after-tax rate of return. 12-24 A farmer bought a new harvester for $120,000. The harvester's operating expenses averaged $10,000 per year but the harvester saved $40,000 per year in labor costs. It was depreciated over a life of 5 years using the 100% bonus depreciation method, assuming a salvage value of $30,000. The farmer sold the harvester for only $10,000 at the end of the fifth year. Given an income tax rate of 30% and a MARR rate of 5% per year, determine the after-tax a 12-31 Xon, a ne useful life, and sume that the salvage value will drilli Xon drilli comt sume a 28% income federal taxes combined. МАЕ (a) D MACRS Depreciation 12-28 A special power tool for plastic A $400,000 and has a 4-year useful astic products costs Selul life, no savage

kindly help with question 12-24 step by step by hand. thanks

Answer 1

Initial investment on mantinely $120,000/- Subwaye value of machinery - $30,000 |- Deprenution pur years $120,000 (- $30,000 * $16.00- - Spears Savings due to purchase machine ale :-) - $401000. Labour costs - $ 901.000 (maintenance ap) - $30,000 (Annual Savings). . net increase in income after depreination - $30,000 (-) $18,000 $12,000/- Then net income after depreciation - $12,000 (-)30% - $8400/- year Por Fal cash contplow) inflow ($100100) $26,400 0.952 Present Value ($ 1201000) $25,133 $23,945 $22,810 $21,727 $26,400 0907 $261400 0.664 $261400 0.823 $36,400 0.764 $26,536 Net prosuit Value: $ 2153 cash flow from year 1-4 - na inome after tan (t) Depreciation = $6,000 (4) 16,000 = 2614004- Ceash flow for year 5 Regular Plow (t) Sale value of maline & $8.400 (t) $18,000 (t) $10,000 >$36,400/-