Question

when you solve this question can you please expand your answer by showing it step by step . and draw a cash flow diagram

DEPRECIATION AND INCOME TAXES la) A machine is purchased for $20,000 and has an expected life of 5 years. The salvage value at the end of 5 years is $2,000. According to: 1) The Straight Line Depreciation 2) The Sum of the Yea's Digit (SOYD) depreciation, what is the book value of the machine at the end of four years? lb) A project provides a revenue of $20,000 increasing at $5,000 per year during a five-year investment period. The machine to be used on the project is purchased for $20,000 and has an expected life of 5 years. The salvage value at the end of 5 years is $2,000. Out-of-pocket expenses are $4000 and increases arithmetically at $1,000/yr thereafter, and depreciation deduction for income tax purposes are taken using a Sum of the Years Digit Depreciation method. What is the before tax and after tax cash flow Rate of Return if the tax rate is 40% ? If the minimum attractive rate of return is 10% will you recommend the project on an after tax cash flow basis?!

Answer 1

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