Question

Operating casinos Atem is consider i ng to meeting and for product. The cost of equipment modifications $1.6 milions $100.000 in on the form will depreciate the equipment modations under MACRS in Sy r y period wie A na t om the houdmouto 5123 per year and o p gepenses and crossing Creation and rest will amount of the The fem is subject to 40% (No Answer the following questions for each of the next year) What incremental aming before depreciation, and we will result from the renewal cwrarements operating show wilt om een The incremental protes before depreciation and a Round to the nearest dolar) Duta Table b. Calculate the incrementalne operating profits her taxes below found to the nearest dollar) Profit before depreciation and taxes Depreciation Net profit before Click on the con located on the p icomer of the databe below in order to spreadsheet Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year years Net potatoes (Round to the nearest dolar) 12 Profit before depreciation and taxes Depreciation Net before Net profitar Enter any number in the edited and the continue to the next Gestion de producerea Convention

Answer 1

Cost of Equipment modifications = 18,30,000 + 106,000

= $19,36,000

.

Additional Sales revenue from renewal per year = $12,30,000

Additional operating expenses & other costs (excluding depreciation & interest) = 41% of Additional Sales

= 12,30,000*41%

= $504,300

.

Part-a)

Incremental profits before depreciation & tax = Additional Sales revenue from renewal - Additional operating expenses & other costs (excluding depreciation & interest)

= $12,30,000 - $504,300

= $725,700

.

Depreciation Calculation:

Year	5 years (% recovery) (1)	Total Cost of Equipment Modification (2)	Depreciation (3) = (1)*(2)
1	20%	1,936,000	387,200
2	32%	1,936,000	619,520
3	19%	1,936,000	367,840
4	12%	1,936,000	232,320
5	12%	1,936,000	232,320
6	5%	1,936,000	96,800

.

.

Part-b: Incremental Net Operating Profits after taxes from renewal:

Year	Incremental Profits before depreciation & tax (1)	Depreciation (2)	Net Operating Profit before Tax (3) = (1)-(2)	Tax @ 40% (4) = (3)*40%	Net Operating Profit After Tax (5) = (3) -(4)
1	725700	387200	338500	135400	203100
2	725700	619520	106180	42472	63708
3	725700	367840	357860	143144	214716
4	725700	232320	493380	197352	296028
5	725700	232320	493380	197352	296028
6	725700	96800	628900	251560	377340

.

Part-c:Incremental Operating Cash Inflows from renewal:

.

Year	Operating Profit after Tax (Computed in part-b) (1)	Depreciation (2)	Cash Inflows (3) = (1)+(2)
1	203,100	387,200	590,300
2	63,708	619,520	683,228
3	214,716	367,840	582,556
4	296,028	232,320	528,348
5	296,028	232,320	528,348
6	377,340	96,800	474,140