An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) fortax purposes. The asset has an acquisition cost of $7,800,000 and will be sold for$1,860,000 at the end of the project.What is the book value of the equipment at the end of Year 4? (Do not roundintermediate calculations and round your answer to the nearest whole number, e.g.,32.)Book valueIf the tax rate is 25 percent, what is the aftertax salvage value of the asset? (Do notround intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)Aftertax salvage value

Here, Time Period of Project is 4

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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A company purchases an asset that costs $30,000. This asset qualifies as 3-year property under MACRS The company uses an after-tax discount rate of 13% and faces a 40% income tax rate, (a) Use the appropriate present value factors found in Appendix C. Table 1, to determine the present value of the depreciation deductions for this firm over the specified four-year period. Refer to Exhibit.12.4. (Round depreciation expense to 2 decimal places.) Depreciation Deduction Tax Present Values Sipped Vear Savings 21 3. 4
DRTF Inc. will acquire a building at a cost of $ 400,000 in addition to paying capitalizable costs of $ 50,000. The building is the only one in its category and is tax depreciable on the declining balance at 4%. The building's anticipated resale value in 10 years is $ 850,000. The LEED-compliant building is eligible for a grant of $ 125,000. You are informed that the tax rate is 20%, the risk-free rate is 4%, creditors require a premium of 5% and shareholders require a premium of 10% on the resale value. Using the marginal analysis, determine the net benefit (in present value) of the subsidy.
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 first 2 years followed by $600,000 thereafter until the asset is retained. The effective tax rate, Te is 35% and interest is 10% per year. In present worth dollars determine the CFAT and determine if it was a viable purchase. (Note answer must be in a tabular format)
A firm purchased $62,800 of fixed assets two years ago. The company no longer needs these assets so it is going to sell them today for $28,500. The assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. What is the net cash flow from this sale if the firm's tax rate is 23 percent and no bonus depreciation is taken? $29,281.04 $26,576.00 $28.878.12 $27,516.60 O $29,648.12
Ef 348.
A long-term asset was purchased at the beginning of 2021. It has a 2-year life and no salvage value. The company uses straight-line method for financial purpose and accelerated depreciation method for tax purpose. For tax purpose, 2021’s depreciation is $480 and 2022’s depreciation is $270. Please compute straight-line depreciation for financial purpose on your own. It should be ($480 + $270) and divided by 2. Assuming taxable income for 2021 is $477,000, the enacted tax rate is 20% for all years, this is the only difference between pretax financial income and taxable income, and there were no deferred taxes at the beginning of 2021. What amount of income tax expense should the company report at the end of 2021?
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…
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $5.7 million and will be sold for $1.8 million at the end of the project. If the tax rate is 21 percent, what is the aftertax salvage value of the asset? Refer to the MACRS schedule. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567) Aftertax salvage value
On January 1, 2023, Blossom Ltd. acquires a building at a cost of $200,000. The building is expected to have a 20-year life and no residual value. The asset is accounted for under the revaluation model, using the asset adjustment method. Revaluations are carried out every three years. On December 31, 2025, the fair value of the building is appraised at $175,000, and on December 31, 2028, its fair value is $120,000. Blossom applies IFRS. Prepare the journal entries required on December 31, 2025, and the journal entry required on December 31, 2028, to revalue the building, if Blossom uses the proportionate method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Date ec. 31, 2025 c. 31, 2028 V Account…
Verify the 5- and 7-year property class percentages byapplying the 200% DB approach to a piece of equipmentwith a nominal value of $1,000. For the 7-year propertyclass, in what year is the switch from 200% DB to StraightLine? Only half of the first and last years are considered inthe computations. This means that for a 5-year class property,instead of deducting 100% × (2/5) = 40% in the firstyear, only half (40%/2 = 20%) is deducted.
(c) TYM Music Corporation is considering the purchase of a new soundboard, used inrecording studios to improve sound effects. The new soundboard requires an initialinvestment of $150,000. A fully depreciated existing soundboard may be disposed offor $40,000 pre-tax. The purchase will have a five-year life and is expected to produceadditional revenue of $65,000 per year. Expenses other than depreciation will be$15,000 per year. The new soundboard will be depreciated to zero over five years, butit is expected to be sold for $20,000 and has a 35% tax rate.(i) Calculate the net initial outlay for the new soundboard purchase. (ii) Calculate the operating cash flow for years 1 to 4.(iii) Calculate the total cash flow at the end of year five (operating cashflow for year 5 plus terminal cash flow).
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

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