Question

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? 1b) 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

$QjOUD. * 5-year property Worth : $ 26,000.00 salvage at end of 5473 MACRS Depreciation schedule ! using straight une method straight ine depreciation formula. (Asset value - salvage value) expected useful life. Depreciation Method - staight line melhod. PRS convention: Mid- Quarter convention Method Book value Depreciation Rate Cumulative Adjusted BAA 3930 16500 3500 20,000 2016 12500 7500 4000 2019 16 500 11500 8900 4000 ta 500 2020 4500 15500 4000 8500. 2021 500 19500 4000 2022 4500 20000 35 500 .. 500. 2023 . Book Value of machine of the end of four yearse $500. Throw