Homework Answers
We know that MACRS depreciation for 7 year property class is given by
| Year | Depreciation Rate |
| 1 | 14.29% |
| 2 | 24.49% |
| 3 | 17.49% |
| 4 | 12.49% |
| 5 | 8.93% |
| 6 | 8.92% |
| 7 | 8.93% |
| 8 | 4.46% |
| 100.00% |
Initial Cost=Co=$235,000
Depreciation to be claimed in 2nd year=235000*24.49%=$57551.50
Cash flow (before taxes) in second year=BTCF=$44000
Taxable income in second year=Net revenue-Depreciation=44000-57551.50=-$13551.50
Tax liability=Taxable income*Tax rate=-13551.50*44%=-$5962.66
Negative tax means tax savings.
After tax cash flow=ATCF=BTCF-Tax laibility=44000-(-5962.66)=$49962.66
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