Homework Help is Here – Start Your Trial Now!
Business
Accounting
company is considering the purchase of a capital asset for $120,000. Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the​ straight-line method and an estimated salvage value ​(SV6​) of ​$22,000. The asset will be kept in service for six​

company is considering the purchase of a capital asset for $120,000. Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the​ straight-line method and an estimated salvage value ​(SV6​) of ​$22,000. The asset will be kept in service for six​

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
A company is considering the purchase of a capital asset for $120,000.
Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the​ straight-line method and an estimated salvage value ​(SV6​) of ​$22,000. The asset will be kept in service for six​ years, after which it will be sold for $27,000. During its useful​ life, it is estimated that the asset will produce annual revenues of
​$25,000. Operating and maintenance​ (O&M) costs are estimated to be
​$5,000 in the first year. These​ O&M costs are projected to increase by
​$500 per year each year thereafter. The after tax MARR is 15​% and the effective tax rate is 25​%.
a. Compute the​ after-tax cash flows.
b. Compute the​ after-tax present worth of the​ project, and use a uniform gradient in your formulation.
c. The​ before-tax present worth of this asset is −​$72,738. By how much would the annual revenues have to increase to make the purchase of this asset justifiable on a ​before-tax​ basis?
a. Calculate the after-tax cash flows and fill in the table below. (Round to the nearest dollar.) (A) BTCF, $ (B) Depreciation, $ (C) = (A) – (B) Taxable Income, D= - 0.25(C) Income Taxes, $ (E) = (A) + (D) ATCF, $ EOY More Info - X Discrete Compounding; i= 15% Uniform Series Single Payment Uniform Gradient Gradient Compound Amount Present Worth Factor Present Sinking Compound Amount Capital Recovery Factor Gradient Present Worth Factor To Find P To Find A Uniform Worth Fund Series Factor Factor Factor Factor Factor To Find P Given F To Find A Given F To Find F To Find F To Find P To Find A Given P Given P Given A Given A Given G Given G F/P P/F FIA PIA A/F A/P P/G A/G 0.0000 0.4651 1.0000 0.0000 1.1500 0.6151 0.4380 0.3503 0.2983 0.2642 0.8696 1.6257 1.1500 0.8696 1.0000 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 1.3225 2.1500 0.4651 0.7561 2.0712 2.2832 2.8550 1.5209 3.4725 4.9934 6.7424 0.2880 0.9071 4 1.7490 0.2003 3.7864 1.3263 1.7228 5 2.0114 3.3522 0.1483 5.7751 2.0972 2.4498 2.7813 3.0922 3.3832 8.7537 3.7845 0.1142 2.3131 2.6600 6. 7.9368 7 11.0668 4.1604 0.0904 0.0729 0.2404 0.2229 10.1924 8 3.0590 13.7268 16.7858 4.4873 12.4807 3.5179 4.0456 4.7716 0.0596 0.2096 14.7548 10 20.3037 5.0188 0.0493 0.1993 16.9795 Print Done
Transcribed Image Text:a. Calculate the after-tax cash flows and fill in the table below. (Round to the nearest dollar.) (A) BTCF, $ (B) Depreciation, $ (C) = (A) – (B) Taxable Income, D= - 0.25(C) Income Taxes, $ (E) = (A) + (D) ATCF, $ EOY More Info - X Discrete Compounding; i= 15% Uniform Series Single Payment Uniform Gradient Gradient Compound Amount Present Worth Factor Present Sinking Compound Amount Capital Recovery Factor Gradient Present Worth Factor To Find P To Find A Uniform Worth Fund Series Factor Factor Factor Factor Factor To Find P Given F To Find A Given F To Find F To Find F To Find P To Find A Given P Given P Given A Given A Given G Given G F/P P/F FIA PIA A/F A/P P/G A/G 0.0000 0.4651 1.0000 0.0000 1.1500 0.6151 0.4380 0.3503 0.2983 0.2642 0.8696 1.6257 1.1500 0.8696 1.0000 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 1.3225 2.1500 0.4651 0.7561 2.0712 2.2832 2.8550 1.5209 3.4725 4.9934 6.7424 0.2880 0.9071 4 1.7490 0.2003 3.7864 1.3263 1.7228 5 2.0114 3.3522 0.1483 5.7751 2.0972 2.4498 2.7813 3.0922 3.3832 8.7537 3.7845 0.1142 2.3131 2.6600 6. 7.9368 7 11.0668 4.1604 0.0904 0.0729 0.2404 0.2229 10.1924 8 3.0590 13.7268 16.7858 4.4873 12.4807 3.5179 4.0456 4.7716 0.0596 0.2096 14.7548 10 20.3037 5.0188 0.0493 0.1993 16.9795 Print Done
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Depletion Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS