Homework Answers
| Solution : | ||||||
| Amount in $ | ||||||
| Year | Cashflow before tax | Depriciation (As per Note-1 & 2) | Taxable income | Tax Benefit @ 32% | Profit after Tax | Cash flow after tax |
| A | B | C = (A - B) | D = (C x 32%) | E = (C - D) | F = (E + B) | |
| 1st | (17,500.00) | 14,000.00 | (31,500.00) | 10,080.00 | (21,420.00) | (7,420.00) |
| 2nd | (10,500.00) | 3,000.00 | (13,500.00) | 4,320.00 | (9,180.00) | (6,180.00) |
| 3rd | (14,000.00) | 3,000.00 | (17,000.00) | 5,440.00 | (11,560.00) | (8,560.00) |
| 4th | (16,000.00) | - | (16,000.00) | 5,120.00 | (10,880.00) | (10,880.00) |
| Note : 1 | ||
| Calculation of the Book Value of the machine at the end of 4th year is as follows : | ||
| Cost of the Machine | = | $ 55000 |
| Life of the Machine | = | 5 years |
| Salvage Value | = | $ 0 |
| Depreciation by SLM | = | (Cost of Equipment - Salvage Value) |
| (assumed by following Straight Line Method) | Life of the Equipment | |
| = | $11000 | |
| Book Value of the machine at the end of 4th year | = | 55000 - (11000 x 4) |
| = | $11000 | |
| Note - 2 | ||
| Calculation of Depreciation of the installed engine | ||
| Cost of Engine | = | $ 9000 |
| Salvage Value | = | $ 0 |
| Life of the Equipment | = | 3 years |
| Depreciation by SLM | = | (Cost of Equipment - Salvage Value) |
| Life of the Equipment | ||
| = | (9000 - 0) / 3 | |
| = | $ 3000 per year |
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