Capital Gains Tax Problem The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system's salvage value at the end of year 5 is $15,000, and the MARR before tax is 18% per year. End of Year 1 Savings $25,000 2 30,000 3 30,000 4 40,000 5 46,000 The company is using double declining balance as its depreciation method. The income tax rate is 20% and capital gains tax is 6%. a. If the system was sold for $10,000 at the end of year 5, construct the ATCF table, and determine the course of action by the management using PW method. b. If the system was sold for $25,000 at the end of year 5, construct the ATCF table, and determine the course of action by the management using PW method.
Capital Gains Tax Problem The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system is $65,000, and the projected annual savings are tabled below. The system's salvage value at the end of year 5 is $15,000, and the MARR before tax is 18% per year. End of Year 1 Savings $25,000 2 30,000 3 30,000 4 40,000 5 46,000 The company is using double declining balance as its depreciation method. The income tax rate is 20% and capital gains tax is 6%. a. If the system was sold for $10,000 at the end of year 5, construct the ATCF table, and determine the course of action by the management using PW method. b. If the system was sold for $25,000 at the end of year 5, construct the ATCF table, and determine the course of action by the management using PW method.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Capital Gains Tax Problem
The International Parcel Service has installed a new radio frequency identification system to
help reduce the number of packages that are incorrectly delivered. The capital investment
in the system is $65,000, and the projected annual savings are tabled below. The system's
salvage value at the end of year 5 is $15,000, and the MARR before tax is 18% per year.
End of Year
1
Savings
$25,000
2
30,000
3
30,000
4
40,000
5
46,000
The company is using double declining balance as its depreciation method. The income tax
rate is 20% and capital gains tax is 6%.
a. If the system was sold for $10,000 at the end of year 5, construct the ATCF table, and
determine the course of action by the management using PW method.
b. If the system was sold for $25,000 at the end of year 5, construct the ATCF table, and
determine the course of action by the management using PW method.
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