An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has anacquisition cost of $6,000,000 and will be sold for $1,200,000 at the end of the project. If the tax rate is 34percent, what is the aftertax salvage value of the asset? Refer to the MACRS schedule. (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answerin dollars, not millions of dollars, e.g., 1,234,567.)Aftertax salvage valueS

after tax salvage value is calculated as follows:-after tax salvage value = Sale price of asset -…

Answered: An asset used in a four-year project…

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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Foley Systems is considering a new project whose data are shown below. Under the new tax law, the equipment for the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. After the project's 3-year life, the equipment would have zero salvage value. The project would require additional net operating working capital (NOWC) that would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows from operations are constant in Years 1 to 3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $75,000 Required net operating working capital (NOWC) $15,000 Annual sales revenues $73,000 Annual operating costs $25,000 Tax rate 25.0% Question options: $2,549 $18,970 $4,571…
Bhuptbhai
am. 38.
Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33.0%, 45.0%, 15.0%, and 7.0% for Years 1 through 4. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost Sales revenues, each year Operating costs Tax rate a. $46,200 b. $47,163 c. $61,600 d. $64,350 e. $50,738 $55,000 $82,300 $20,700 25.0%
An existing asset being considered for replacement has a current MV of $12,000 and a current BV of $18,000. Determine the after-tax investment value of the existing asset (if kept) using the outsider viewpoint and an effective income tax rate of 34%.
bhavu
Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. The equipment would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital (NOWC) would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $70,000 Required net operating working capital (NOWC) $10,000 Annual sales revenues $61,000 Annual operating costs $30,000 Expected pre-tax salvage value $5,000 Tax rate 25.0% Please explain and provide calculations.
Vishnu
F1.
The purchased price of the equipment is P12,000 and its estimated maintenance costs are P500 for the first year, P1,500 for the second year, and P2,500 for the third year. After three years of use the equipment is replaced, it has no salvage value. Compute the present equivalent cost of the equipment using 10% interest. (capitalized cost)
Assume the following: . A firm acquires an asset for $120.000 with a 5 year useful life and no salvage . The asset will generate $50,000 of cash flow for all five years . The tax rate is 20% . The firm will depreciate the asset over four years on a straight-line (SL) basis for tax purposes and over five years on a SL basis for financial reporting purposes. Taxable income in year 1 is: $26.000 $20.000 © $4.000
Freedom Corporation acquired a fixed asset for $300,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 7% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2) Jy 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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