1. The Smith Timber Company has been in operation for many years and is looking to invest in the Pacesetter3000 timber cutter. They expect to keep this machine for 3 years. In order to install the machine they havedecided to take a piece of land off the market that they were trying to sell for $500,000. The machine willcost $150,000 and $30,000 to install. Depreciation for accounting purposes is 8 years straight line and fortaxation purposes is 6 years straight line. The installation is immediately tax deductible. The tax rate is 30%.The company feels that they will need to keep an extra $40,000 in inventory from the start of the project. Areport was commissioned last year that looked at the feasibility of the project and cost $1m to write.The machine will see output increase by 4 million units to 10m units. The variable cost per unit will be$3.50 and the sales price per unit $10. Fixed costs will increase from $250,000 per annum to $450,000 perannum. Head office costs of $1m will be allocated to the new machine but the overall head office costshave not changed with the addition of the new machine.(a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearestthousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not$93,456 .Answer:(b) Calculate the Free Cash Flow in Year 1. Do not round to the nearest thousand, and don't type thedollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456

Depreciation expense is a non-cash expense to which companies deduct from their net income.…

(a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456. Answer:

(a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456. Answer:

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 13PB: Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and...

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Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.
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Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and is expected to be driven for ten years. Montezuma uses the straight-line depreciation method. Calculate the annual depreciation expense. After five years of recording depreciation, Montezuma determines that the delivery truck will be useful for another five years (ten years in total, as originally expected) and that the salvage value will increase to $10,000. Determine the depreciation expense for the final five years of the assets life, and create the journal entry for years 6â€“10 (the entry will be the same for each of the five years).
Kenzie purchased a new 3-D printer for $450,000. Although this printer is expected to last for ten years, Kenzie knows the technology will become old quickly and so she plans to replace this printer in three years. At that point, Kenzie believes she will be able to sell the printer for $30,000. Calculate yearly depreciation using the double-declining-balance method.
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