A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (Use Table 1, Table 2 and Exhibit 12.4.) Year MACRS % Depreciation Deduction Tax Savings PV Factor Present Values 1 33.33% 3,333.00 1,333.20 0.893 1,190.55 2 44.45% 4,445.00 1,778.00 0.797 1,417.07 3 14.81% 1,481.00 592.40 0.712 421.79 4 7.41% 741.00 296.40 0.636 188.51 100% 10,000.00 4,000.00 3,217.91 2. Given an after-tax discount rate of 12%, what tax rate would be needed in order for the PV of the depreciation deductions to equal $4,000?
A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (Use Table 1, Table 2 and Exhibit 12.4.) Year MACRS % Depreciation Deduction Tax Savings PV Factor Present Values 1 33.33% 3,333.00 1,333.20 0.893 1,190.55 2 44.45% 4,445.00 1,778.00 0.797 1,417.07 3 14.81% 1,481.00 592.40 0.712 421.79 4 7.41% 741.00 296.40 0.636 188.51 100% 10,000.00 4,000.00 3,217.91 2. Given an after-tax discount rate of 12%, what tax rate would be needed in order for the PV of the depreciation deductions to equal $4,000?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (Use Table 1, Table 2 and Exhibit 12.4.)
|
Year |
MACRS % |
Deduction |
Tax Savings |
PV Factor |
Present Values |
|
1 |
33.33% |
3,333.00 |
1,333.20 |
0.893 |
1,190.55 |
|
2 |
44.45% |
4,445.00 |
1,778.00 |
0.797 |
1,417.07 |
|
3 |
14.81% |
1,481.00 |
592.40 |
0.712 |
421.79 |
|
4 |
7.41% |
741.00 |
296.40 |
0.636 |
188.51 |
|
100% |
10,000.00 |
4,000.00 |
3,217.91 |
2. Given an after-tax discount rate of 12%, what tax rate would be needed in order for the PV of the depreciation deductions to equal $4,000?
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