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A company purchases an industrial laser for $166,000. The device has a useful life of 4 years and a salvage value (market value) at the end of those four years of $60,000. The before-tax cash flow is estimated to be $80,000 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 23%, 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 $75,000 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 (rg) 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.) ΕΟΥ Depreciation, $ ATCF, $ - 166,000 1

A company purchases an industrial laser for $166,000. The device has a useful life of 4 years and a salvage value (market value) at the end of those four years of $60,000. The before-tax cash flow is estimated to be $80,000 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 23%, 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 $75,000 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 (rg) 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.) ΕΟΥ Depreciation, $ ATCF, $ - 166,000 1

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company purchases an industrial laser for $166,000. The device has a useful life of 4 years and a salvage value (market value) at the end of those four years of $60,000. The before-tax cash flow is estimated to be $80,000 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 23%, 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 $75,000 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, $ - 166,000 1
Transcribed Image Text:A company purchases an industrial laser for $166,000. The device has a useful life of 4 years and a salvage value (market value) at the end of those four years of $60,000. The before-tax cash flow is estimated to be $80,000 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 23%, 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 $75,000 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, $ - 166,000 1
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