Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,400; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,600 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,500 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $. (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2 3 4 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 6% 4% 100% 100% 100% 100% Totals *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. 5 6 7 8 9 10 11 3 years 33% 45% 15% 7% Percentage by recovery year* 5 years 20% 32% 19% 12% 12% 5% Print Done 7 years 14% 25% 18% 12% 9% 9% 9% 4%
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,400; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,600 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,500 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $. (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2 3 4 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 6% 4% 100% 100% 100% 100% Totals *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. 5 6 7 8 9 10 11 3 years 33% 45% 15% 7% Percentage by recovery year* 5 years 20% 32% 19% 12% 12% 5% Print Done 7 years 14% 25% 18% 12% 9% 9% 9% 4%
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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Transcribed Image Text:Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,400; it was being depreciated under MACRS using a 5-year recovery period. (See
table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,600 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can
currently be sold for $25,500 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine.
The initial cash flow will be $. (Round to the nearest dollar.)
Data table
(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
3 years
33%
45%
15%
7%
Recovery year
1
2
3
4
5
6
7
8
9
10
11
100%
100%
100%
Totals
*These percentages have been rounded to the nearest whole percent to simplify calculations while
retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual
unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year
convention.
Percentage by recovery year*
5 years
20%
32%
19%
12%
12%
5%
Print
7 years
14%
25%
18%
12%
9%
9%
9%
4%
Done
10 years
10%
18%
14%
12%
9%
8%
7%
6%
6%
6%
4%
100%
-
X
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