Question

For dollar value responses: Post your responses to the nearest dollar, unless instructed to provide more detail in the question. Do not use dollar signs. Question 75 4 pts Exotic Woods, Inc. Imports hardwoods for milling and sale to woodworkers. It is considering the purchase of a computerized planer/jointer machine that will enable it to generate new revenues from new product offerings. The equipment will cost $82,000, plus shipping of $1,500 and installation of $6,200. The asset will be depreciated by the three-year MACRS schedule (Yr 1: 33%; Yr 2:45%, Yr 3:15%; Yr 47%). Its estimated salvage value at the end of the project is $15,000. Estimated sales of new products derived from the new machine are as follows: 1 2 3 $140,000 $230,000 $180,000 Operating expenses other than depreciation are estimated at $50,000 annually plus 20% of sales. As a result of the higher level of production and sales, net working capital must increase by $35,000 at time zero, of which only $15,000 will be returned at the termination of the project. The firm's marginal tax rate is 40% and the cost of capital (RRR) related to this project is 13%. Given this information, what would be the Incremental Taxable income for year 2? • Previous Next →

Answer 1

Particulars	Amount
Annual sales	$           230,000
Less: cash expenses	$            (96,000)
CFBT	$           134,000
Less: depreciation	$            (40,365)
Incremental taxable income	$             93,635

Incremental taxable income for year 2 is 93,635