Question

3. Company A purchases $200,000 of equipment in year 0. It decides to use straight-line depreciation over the expected 20 yr life of the equipment. The interest rate is 16%. If its overall tax rate is 40%, what is the present worth of the after-tax depreciation recovery? $23,115 B. $23,315 C. $23,515 D. $23,715 A. 4 A. plan A B. Plan B C. Plan C D. Plan A or B 5. A machine costs $10,000 and can be depreciated over a period of eight years, after which its salvage value will be $2,000. What is the straight-line depreciation in year 3? A. $700 B. $800 C. $900 D. $1000 6. A groundwater treatment system is needed to re-mediate a solvent-contaminated aquifer. The system costs $2,500,000. It is expected to operate a total of 130,000 hours over a period of 10 years and then have a $250,000 salvage value. During its first year in service, it is operated for 6500 hours. What is its depreciation in the first two years using the MACRS method? A. $700,000 B. $720,000 C. $740,000 D. $760,000 7. A machine initially costing $25,000 will have a salvage value of $6000 after five years. Using MACRS depreciation, what will its book value be after the 4th year? A. $4125 B. $4225 C. $4325 D. $4425 8. A machine has an initial cost of $50,000 and a salvage value of $10,000 after 8 years. What is the straight-line depreciation rate as a percentage of the initial cost? A. 8% B. 10% C. 12% D. 14%

Answer 1

3 Answer is D $23,715 Equipment Number of year Depreciation per year $200,000 a 2016 $10,000 a/b Tax rate Tax savings PV of 16% for 20 years Present worth 40% $4,000 5.928841 $23,715 Answer 5 Answer is D $1,000 Cost of machine Salvage value Depreciable cost Year of life Depreciation per year $10,000 $2,000 $8,000 a 8|b $1,000 a/b 6 Answer is A $700,000 MACRS method Cost of asset Year Year 1 Year 2 Total Depreciation $2,500,000 MACRS % Depreciation 10% $250,000 18% $450,000 $700,000 7 Answer is C $4,325 Cost of asset Year Year 1 Year 2 Year 3 Year 4 $25,000 MACRS % Depreciation 20.00% $5,000 32.00% $8,000 19.20% $4,800 $2,875 NBV $20,000 $12,000 $7,200 $4,325 11.50% 8 Answer is B 10% Cost of machine Salvage value Depreciable cost Year of life Depreciation per year $50,000 6 $10.0001 $40,000 8 $5,000 a 10% a/b Depreciation as % of initial cost