You pay $18,000 for new equipment plus you pay $2,000 to install it, which is added to the costbasis. Each year for five years, you earned $5,000 from the use of this equipment from which youthenneeded to subtract $1,000 in expenses.(a) Using straight-line depreciation over a 5-year lifetime (with a half-year adjustment in years 1 and6)and a tax rate of 28%, what was your after-tax cash flow (ATCF) from this investment in year 3?(b) Using the GDS depreciation schedule for a 5-year recovery period, what was your ATCF in year 3?GDS depreciation schedule for a 5-year recovery periodyear = 12345 6factor = 0.20 0.32 0.192 0.1152 0.1152 0.0576(c) What is the present worth at time 0 of this investment using a MARR of 8%?

Part A Initial Cost of Equipment +Overhead= $20000 Initial cost of equipment after tax= $25600…

Answered: $1,000 in exp e depreciatie

Business

Accounting

$1,000 in exp e depreciatie

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

You pay $18,000 for new equipment plus you pay $2,000 to install it, which is added to the cost
basis. Each year for five years, you earned $5,000 from the use of this equipment from which you
then
needed to subtract $1,000 in expenses.
(a) Using straight-line depreciation over a 5-year lifetime (with a half-year adjustment in years 1 and
6)
and a tax rate of 28%, what was your after-tax cash flow (ATCF) from this investment in year 3?
(b) Using the GDS depreciation schedule for a 5-year recovery period, what was your ATCF in year 3?
GDS depreciation schedule for a 5-year recovery period
year = 12345 6
factor = 0.20 0.32 0.192 0.1152 0.1152 0.0576
(c) What is the present worth at time 0 of this investment using a MARR of 8%?

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