Question

PLEASE ANSWER ALL PARTS OF THE QUESTION

X о Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 5 years 7 years Recovery year 3 years 10 years 1 33% 20% 14% 10% 18% 2 45% 32% 25% 18% 3 15% 19% 14% 12% 4 7% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 6% 10 6% 11 4% 100% 100% Totals 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention Print Done

Answer 1

Part-a:

	{1}	{2}	{3} = {1}*{2}	{4}	{5} = {3}-{4}
Year	Original Cost	Depn Rate	Depreciation	Accumulated Depn	Book Value
1	60,300	14%	8,442	8,442	51,858
2	60,300	25%	15,075	23,517	36,783
3	60,300	18%	10,854	34,371	25,929
4	60,300	12%	7,236	41,607	18,693
5	60,300	9%	5,427	47,034	13,266

Book Value of existing roaster = $13,266 (as computed from table above)

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Part-b:

Book Value of existing roaster = $13,266

Selling price of existing roaster = $35,200

Capital gain on sale of existing roaster = (35,200-13,266) = $21,934

Tax on capital gains =( 21,934*40%) = $8,773.60

Net Sales proceeds from sale of existing roaster (i.e. after tax salvage value of existing roaster) = Selling price of existing roaster - Tax on capital gains

= $35,200 - $8,773.60

= $26,426.40

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Part-c:

Change in working capital:

Increase in Working Capital due to:
Increase in Assets:
Increase in Inventory	50,700
Increase in Accounts Receivable	71,000
Decrease in Liability:
Decrease in Accruals	20,300
Increase in Working Capital (1):	142,000
Decrease in Working Capital due to:
Increase in Liability:
Increase in Accounts Payable	39,100
Increase in Notes Payable	14,800
Decrease in Working Capital (2):	53,900
Net Increase in Working Capital (1)-(2):	88,100

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Part-d:

Initial Investment associated with the proposed new roaster = Cost of proposed new roaster - Net Sales proceeds from sale of existing roaster + Net increase in Working Capital

= 121,000 – 26,426.40 + 88,100

= $182,673.60