Freedom Corporation acquired a fixed asset for $140,000. Its estimated life at time of purchase was 4 years, with no estimated salvagevalue. Assume a discount rate of 6% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.)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 calculatedepreciation 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 calculatedepreciation 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 3-year asset. Use the half-year convention.Complete this question by entering your answers in the tabs below.Required 1Required 2Required 3What 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 tocalculate depreciation charges. (Negative amount should be indicated by a minus sign. Round your answer to the nearestwhole dollar.)Incremental PV of tax savings using SYD depreciationRequired 1Required 2 >

Incremental present value of the tax benefits resulting from calculating depreciation using the…

Answered: Freedom Corporation acquired a fixed…

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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Required information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. Choose Numerator: 1 1 Accounting Rate of Return Choose Denominator: G O
Value of Accelerated Depreciation: Sum-of-Years’-Digits (SYD) and Double-DecliningBalance (DDB) Methods Freedom Corporation acquired a fixed asset for $100,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rateof 8% and an income tax rate of 40%.Required1. What is the incremental present value (rounded to the nearest whole dollar) of the tax benefits resultingfrom 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 (rounded to the nearest whole dollar) of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than thestraight-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 (rounded to…
The tax rate of the company is 55% and it uses straight line method of depreciation. The Question. 3. A company is considering an investment proposal to install a estimated cash flows before tax (CFBT) are 10,000; 11,000; 14,000; 15,000 and v machinery. The project will cost 50,000 with life of 5 years and no salvage value. new 25,000 during years 1,2,3,4 and 5 respectively. Compute: (i) Average rate of return. (ii) NPV at 10% discount rate. (iii) Profitability Index at 10% discount rate. Note : Discount factors at 10% are 0.909, 0.826, 0.751, 0.683 and 0.621 for the years 1,2,3,4 and 5.
A non-current asset costing €2,000 was acquired at the start of year 1. It is being depreciated straight line over four years, resulting in annual depreciation charges of €500. Thus a total of €2,000 of depreciation is being charged. The income tax rate is 25%. The capital allowances (=’tax depreciations’) granted on this asset are: Year 1 €800 Year 2 €600 Year 3 €360 Year 4 €240 Assume that the pretax accounting income is €10.000 each of the following four years. Required: Calculate the deferred tax account, assuming: 1. Data as presented above 2. Data as above but asset is being revalued at the end of year 2 by €1.500. 3. Data as above but the asset is being impaired at the end of year 2 by €800
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
A property is sold for $6,200,000 and the mortgage balance at the time of sale is $3,600,000. The property was purchased 5 years ago for $4,820,000. Annual depreciation allowances of $140,000 have been taken. The tax rate on capital gains is 15% and the tax rate on depreciation recapture is 25%. What is the after-tax cash flow to equity associated with the sale of the property?
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…
If an item is capitalized why do you think different depreciation methods are allowed? Does the depreciation method chosen impact Net Income in the short term? What about over the life of the asset? Assume you have an asset with original cost of $150,000 and accumulated depreciation of $30,000 when you spend $10,000 on the asset. If the $10,000 is an ordinary repair what is the Book Value Before and the Book Value after the $10,000 expenditure? If the $10.000 expenditure is an Extraordinary Repair (extends the life of the asset) and is recorded as a debit to Accumulated Depreciation and a credit to Cash What is the Book Value Before and the Book Value after the $10,000 expenditure? if the expenditure is a Betterment (improves the function of the asset) and is recorded as a debit to the asset and a credit to Cash. What is the Book Value Before and the Book Value after the $10,000 expenditure?
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $299,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $181,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1. a. What is the book value of the equipment? The book value of the equipment after the third year is $ (Round to the nearest dollar.)
Use the spreadsheet to determine the after-tax internal rate of return. For this problem, assumea a 10 year analysis period, straight-line depreciation is used, 21% corporate tax rate , an initial cost of $ 200,000, an annual benefit of $60,000 and no salvage value but instead you must pay a disposal fee of $20,000 that your corporate accountant determined is tax deductible.
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

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