Question

Please don’t use excel

A company has a machine purchased for $50,000 that has an estimated salvage value of $5,000 at the end of its 5-year useful life. The actual salvage value turned out to be $8,000 in year 5. The company's tax rate is 21%. If the before tax cash flow for this machine is as shown below, fill in the cells A-F on the table using sum-of-years-digits depreciation (6 pts). 5-2+ A 1500o YEAR BTCF Depreciation Book Value Taxable Income Tax ATCF -22000 B-16343 0 -50,000 2 o00 35000 | 350 o u | 니) 12 115,000 2 13,000 12000 3 11,000 900o 4 14,000 D 5 10,000 3000 8,000

Answer 1

Let us calculate depreciation and book value first

Initial Cost=Co=$50000

Salvage value=S=$5000

Sum of years' digits=5+4+3+2+1=15

Depreciation in first year=(5/15)*(50000-5000)=$15000

Book Value after 1st year=50000-15000=$35000

Depreciation in 2nd year=(4/15)*(50000-5000)=$12000

Book Value after 2nd year=35000-12000=$23000

Depreciation in 3rd year=(3/15)*(50000-5000)=$9000

Book Value after 3rd year=23000-9000=$14000

Depreciation in 4th year=(2/15)*(50000-5000)=$6000

Book Value after 4th year=14000-6000=$8000

Depreciation in 5th year=(1/15)*(50000-5000)=$3000

Book Value after 4th year=8000-3000=$5000

Now we fill other parts of table. Formulas are given in heading of table.

Year	BTCF	Depreciation, D	Book Value	Taxable income, TI=(BTCF-D)	Tax= -TI*21%	ATCF= BTCF+Tax
0	-50000		50000			-50000
1	15000	15000	35000	0	0	15000
2	13000	12000	23000	1000	-210	12790
3	11000	9000	14000	2000	-420	10580
4	14000	6000	8000	8000	-1680	12320
5	10000	3000	5000	7000	-1470	8530
5	8000	0	0	3000	-630	7370

Tricky part is sale of salvage. Sale receipts are higher than book value. So, cash inflow will be $8000. But taxable value is equal to difference in cash inflow and book value i.e. $3000 (8000-5000).