Question

Engineering Economy

Please solve, for A and B please solve them correct!

A company purchases an industrial laser for $176,000. The device has a useful life of 4 years and a salvage value (market value) at the end of those four years of $50,000. The before-tax cash flow is estimated to be $95,000 per year. a. You, of course, suggested applying the 3-year MACRS (GDS) method instead of the straight-line method. Given an effective tax rate of 28%, determine the depreciation schedule and the after tax cash flow. b. Based on the MACRS depreciation schedule for this asset, if the industrial laser was sold for $115,000 in year two (consider year two to be the "year 2" row in the table in Part (a), what will be the amount of gain (depreciation recapture) or loss on the disposal of the asset at the end of this year? Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. a. Determine the MACRS depreciation amounts and the after tax cash flow for this laser. Fill in the table below. (Round to the nearest dollar.) EOY Depreciation, $ ATCF, $ 0 -176,000 1 GDS Recovery Rates (r) for the Six Personal Property Classes Recovery Period (and Property Class) 15-year Year 3-year 5-year 20-year 7-year 10-year 1 0.3333 0.2000 0.1429 0.1000 0.0500 0.0375 2 0.4445 0.2449 0.0950 0.3200 0.1800 0.0722 3 0.1481 0.1920 0.1749 0.1440 0.0855 0.0668 4 0.0741 0.1152 0.0770 0.0618 0.1249 0.1152 5 0.1152 0.0893 0.0693 0.0571 0.0922 6 0.0623 0.0528 0.0576 0.0892 0.0737 0.0590 0.0489 7 0.0893 0.0655 0.0452 0.0446 0.0655 0.0590 8 0.0447 0.0656 0.0591 0.0447 0.0655 0.0590 10 0.0446 0.0591 0.0328 11 0.0446 0.0590 12 0.0591 0.0446 13 0.0446 0.0590 14 0.0446 0.0591 15 0.0446 0.0295 16 0.0446 17 0.0446 18 0.0446 19 0.0446 20 0.0223 21 These rates are determined by applying the 200% DB method (with switchover to the SL method) to the recovei alf-year convention applied to the first and last years. Rates for each period must sum to 1.0000. These rates are determined with the 150 % DB method instead of the 200 % DB method (with switchover to the SI method) and ounded off to four decimal places. od with th +

Answer 1

a.

Year (t)	Initial cost	MACRS depreciation percentage	Depreciation D : Value of asset* MACRS depreciation percentage	Salvage value	Before Tax cash Flow (BTCF)	Before Tax cash Flow (BTCF)+ Salvage value for last year)	Taxable Income = (BTCF - depreciation)	Income taxes = (Taxable Income *28%)	After tax cash flow (ATCF) = (BTCF - Income tax)
0	-$176,000		N/A						-$176,000
1		33.33%	$58,661		$95,000	$95,000	$36,339	$10,175	$84,825
2		44.45%	$78,232		$95,000	$95,000	$16,768	$4,695	$90,305
3		14.81%	$26,066		$95,000	$95,000	$68,934	$19,302	$75,698
4		7.41%	$13,042	$50,000	$95,000	$145,000	$131,958	$36,948	$108,052

Formulas used in excel calculation:

A C D F G Depreciation D: Value of Valde asset MACRS depreciation percentage N, Before Tax cash Flow MACRS depreciation percentage Before Tax cash (BTCF)+ Salvage value for last year) Taxable Income - depreciation) (BTCF Income taxes (Taxable After tax cash flow (ATCF)= Income *28% (BTCF Initial cost Salvage value Flow (BTCF) Year (t) Income tax) -176000 2 0 95000 =H3* 0.28 -$B$2*C3 95000 0.3333 G3-D3 _ 95000 4 2 -$B$2°C -$B$2°C -$B$2 °C6 0.4445 0.1481 o.0741 www 95000 95000 G5-15 9-05 - G6-D6 . 4 50000 95000 - 95000+E6 EH6 0.28 -G6 -16

b.

Year (t)	Initial cost	MACRS depreciation percentage	Depreciation D : Value of asset*MACRS depreciation percentage	Book value (BVk) (Book value for previous year - D)	Salvage value	Before Tax cash Flow (BTCF)	Before Tax cash Flow (BTCF)+ Salvage value for last year)	Taxable Income = (BTCF - depreciation)	Income taxes = (Taxable Income *28%)	After tax cash flow (ATCF) = (BTCF - Income tax)
0	-$176,000		N/A	$176,000						-$176,000
1		33.33%	$58,661	$117,339		$95,000	$95,000	$36,339	$10,175	$84,825
2		44.45%	$78,232	$39,107	$115,000	$95,000	$210,000	$207,661	$58,145	$151,855

Formulas used in excel calculation:

C G A B D H MACRS Depreciation D : Value of Book value (BVk) (Book asset MACRS depreciation percentage D) N/A Before Tax cash Flow Taxable Income = After tax cash flow Income taxes= (Taxable Income 28%) depreciation Year (t) Initial cost percentage l(ВТCE (ATCF) (BTCF Income tax) value for previous year Before Tax cash (BTCF)+ Salvage value for last year) depreciation) Salvage value Flow (BTCF) 2 0 176000 -B2 -B2 0.3333 0.4445 -SB$2*C3 -$B$2*C4 95000 95000 EH3-J3 ЕНЗ-DЗ = 13 0.28 3 1 =E2-D3 -H4-D4+( F4 - E4) |-ЕЗ-D4 115000 95000 EH4-14 4 2 =95000+F4 =14*0.28