1. A special manufacturing and handling device was purchased by Alfonso Manufacturing for$200,000 and is depreciated over MACRS. CFBT is estimated to amount to $800,000 for the first2 years followed by $600,000 thereafter until the asset is retained. The effective tax rate, Te is35% and interest is 10% per year. In present worth dollars determine the CFAT and determine ifit was a viable purchase. (Note answer must be in a tabular format)

Net present value refers to the difference between the inflows and outflows of cash during a…

Answered: 1. A special manufacturing and handling…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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On April 1, 2024, Titan Corporation purchases office equipment for $50,000. For tax reporting, the company uses MACRS and classifies the equipment as 5-year personal property. In 2024, this type of equipment is eligible for 60% first-year bonus depreciation. For financial reporting, the company uses straight-line depreciation. Assume the equipment has no residual value.Required: Calculate annual depreciation for the five-year life of the equipment according to MACRS. The company uses the half-year convention for tax reporting purposes.Calculate annual depreciation for the five-year life of the equipment according to straight-line depreciation. The company uses partial-year depreciation based on the number of months the asset is in service for financial reporting purposes. In which year(s) is tax depreciation greater than financial reporting depreciation?
V6. A company purchases land, building and equipment for $1,500,000. An independent appraisal shows that the best available indications of fair value at the time of purchase are: land: $760,000; building: $540,000; and equipment: $320,000. The purchase is financed through long-term debt. Required: Prepare the journal entry to record the purchase Prepare the journal entry to record the purchase:
Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company’s tax rate is 20 percent. Required: Compute the present value of the tax shield resulting from depreciation. 2. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).
Pearl Limited purchased an asset at a cost of $20,000 on March 1, 2023. The asset has a useful life of seven years and an estimated residual value of $2,200. For tax purposes, the asset belongs in CCA Class 8, with a rate of 20%. (a) Calculate the CCA for each year, 2023 to 2026, assuming Pearl's asset is eligible for the Accelerated Investment Incentive, and that this is the only asset in Class 8. 2023 2024 2025 2026 2024 2025 CCA 2026 $ TA (b) How would the calculation for each year from 2024 to 2026 change if the asset had been purchased in 2024? $ $ $ tA tA $ CCA
Alternative A has an initial cost of $-130,000, an annual cash-flow before taxes of $60,000, and a depreciable life of 3 years. Alternative B has an initial cost of $-95,000, an annual cash-flow before taxes of $20,000, and a depreciable life of 5 years. The company considering the alternatives is in the 35% tax bracket and assumes straight line depreciation with an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 6% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis. The annual worth analysis for system A is determined to be $3655.47 The annual worth analysis for system B is determined to be $ System A is selected.
6) A company is considering purchasing a new automated machine that is expected to generate an additional income of $125,000 annually. The equipment will have an initial cost of $187,500 and estimated annual operating and maintenance costs of $50,000. Its estimated salvage value at the end of its useful life of 4 years will be $37,500. The equipment is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) ΕΟΥ BTCF a) 0 1 2 3 4 MACRS-GDS Deduction Taxable Income Tax ATCF b) (8 points) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new equipment?
Aa.2
North Ltd. purchased a building in 20X5 for $1,200,000. Straight-line depreciation was used, with a useful life of 40 years and a residual value of $200,000. A full year of depreciation was charged in 20X5. In 2008, the company decided to switch depreciation methods to declining balance, using a rate of 10%. The tax rate is 30%. Required: 1. Assume this is a change in estimate, and calculate 20X8 depreciation expense. Depreciation expense $112,500 2. Assume this is a change in policy, and calculate 20X8 depreciation expense and the cumulative effect of the change on 20X8 opening retained earnings. Depreciation expense $ 240,000
7. Several years ago, Pentair purchased equipment for $23,500,000. Pentair uses straight-line depreciation for financial reporting and accelerated depreciation for tax purposes. At December 31, 2020, the carrying value of the equipment was $21,150,000 and its tax basis was $17,625,000. At December 31, 2021, the carrying value of the equipment was $18,800,000 and the tax basis was $12,925,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $28,500,000. A tax rate of 25% applies to all years. Required:Prepare the journal entry to record Pentair's income tax expense for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Kk.254. Company XYZ purchased a S.16H qualifying environmentally friendly vehicle for $500,000. Vehicles are a 30% annual allowance asset. How much of this purchase will be added to the 30% depreciation pool in the current year?
Freedom Corporation acquired a fixed asset for $140,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 6% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a…
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