Question

please solve it clear and sold both questions they are together.

Vandelay Industries, an importjexport company, purchased $100,000 of computer equipment. The equipment generated $65,000 in each of the next 4 years. The computer equipment is sold for $25,000 at the end of 4 years. Vandelay Industries uses MACRS depreciation and pays taxes at a combined rate of 40%. Complete the table. Taxable Income Tax ВТСF Year MACRS d ATCF Income (40%) 1 2 aoo 4 10 10.Calculate the After-Tax Rate of Return and determine whether purchasing this equipment was a wise choice if the company uses an after-tax MARR of 25%. A) Yes, since After-Tax Rate of Return> MARR ID B) Yes, since After-Tax Rate of Return < MARR C) No, since After-Tax Rate of Return MARR. D) No, since After-Tax Rate of Return < MARR.

you might need to guess the macrs class.

Answer 1

	ASSUMING 3 Year MACRS Depreciation Class
	N	A	B	C=B*$100000	D=A-C	E=D*40%	F=D-E	G	H=F+C+G+A	PV=H/(1.25^N)
	Year	BTCF	MACRS 3 year Rate	MACRS Depreciation	Taxable Income	Income Tax	Net Income	After tax Salvage Value*	ATCF	Present Value at 25% discount
	0	($100,000)							($100,000)	($100,000)
	1	$65,000	33.33%	$33,330	$31,670	$12,668	$19,002		$52,332	$41,866
	2	$65,000	44.45%	$44,450	$20,550	$8,220	$12,330		$56,780	$36,339
	3	$65,000	14.81%	$14,810	$50,190	$20,076	$30,114		$44,924	$23,001
	4	$65,000	7.41%	$7,410	$57,590	$23,036	$34,554	$15,000	$56,964	$23,332
									Total	$24,538
	* Calculation of After Tax Salvage Value
	Before Tax salvage Value	$25,000
	Tax on gain =40%*25000	$10,000
	After tax salvage value	$15,000
10	After Tax Rate of Return	38.35%	(Using IRR function of excelover ATCF)
	Net Present Value(NPV)	$24,538
	ANSWER:
	A. Yes,After tax return>MARR
	NPV positive