Homework Answers
1.
| A | B | C= A-B | D= C*30% | E = A - D | |
| Year | Income Before depreciation | SLM Depreciation | Taxable Income | Taxes | Cashflows |
| 1 | 67500 | 9000 | 58500 | 17550 | 49950 |
| 2 | 67500 | 18000 | 49500 | 14850 | 52650 |
| 3 | 67500 | 18000 | 49500 | 14850 | 52650 |
| 4 | 67500 | 18000 | 49500 | 14850 | 52650 |
| 5 | 67500 | 18000 | 49500 | 14850 | 52650 |
| 6 | 67500 | 9000 | 58500 | 17550 | 49950 |
2.
| A | B | C= A-B | D= C*30% | E = A - D | |
| Year | Income Before depreciation | MACRS Depreciation | Taxable Income | Taxes | Cashflows |
| 1 | 67500 | 18000 | 49500 | 14850 | 52650 |
| 2 | 67500 | 28800 | 38700 | 11610 | 55890 |
| 3 | 67500 | 17280 | 50220 | 15066 | 52434 |
| 4 | 67500 | 10368 | 57132 | 17139.6 | 50360.4 |
| 5 | 67500 | 10368 | 57132 | 17139.6 | 50360.4 |
| 6 | 67500 | 5184 | 62316 | 18694.8 | 48805.2 |
3.NPV (SLM)
| Year | Cashflow | PV Factor @ 8% | Discounted Cashflow |
| 1 | 49950 | 0.92593 | 46250.00 |
| 2 | 52650 | 0.85734 | 45138.89 |
| 3 | 52650 | 0.79383 | 41795.27 |
| 4 | 52650 | 0.73503 | 38699.32 |
| 5 | 52650 | 0.68058 | 35832.71 |
| 6 | 49950 | 0.63017 | 31476.97 |
| PV of cash inflows | 239193.16 | ||
| Less: Cash Outflow | 90000.00 | ||
| NPV | 149193.16 | ||
4. NPV (MACRS)
| Year | Cashflow | PV Factor @ 8% | Discounted Cashflow |
| 1 | 52650 | 0.92593 | 48750.00 |
| 2 | 55890 | 0.85734 | 47916.67 |
| 3 | 52434 | 0.79383 | 41623.80 |
| 4 | 50360.4 | 0.73503 | 37016.40 |
| 5 | 50360.4 | 0.68058 | 34274.44 |
| 6 | 48805.2 | 0.63017 | 30755.55 |
| PV of cash inflows | 240336.86 | ||
| Less: Cash Outflow | 90000.00 | ||
| NPV | 150336.86 | ||
Recommendation: Since NPV under MACRS is higher, it is recommended to use MACRS for claiming depreciation.
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