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irm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.82 million plus $111,000 in installation costs. The firm will depreciate the equipment modifications under​ MACRS, using a​ 5-year recovery period​ (see table attached.) ​ Additional sales revenue from the renewal should amount to $1.24 million per​ year, and additional operating expenses and other costs​ (excluding depreciation and​ interest) will amount to 41% of the additional sales. The firm is subject to a tax rate of 21%. ​(Note​:Answer the following questions for each of the next 6​ years.)   a. What net incremental earnings before​ depreciation, interest, and taxes will result from the​ renewal?   b. What net incremental operating profits after taxes will result from the​ renewal?

irm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.82 million plus $111,000 in installation costs. The firm will depreciate the equipment modifications under​ MACRS, using a​ 5-year recovery period​ (see table attached.) ​ Additional sales revenue from the renewal should amount to $1.24 million per​ year, and additional operating expenses and other costs​ (excluding depreciation and​ interest) will amount to 41% of the additional sales. The firm is subject to a tax rate of 21%. ​(Note​:Answer the following questions for each of the next 6​ years.)   a. What net incremental earnings before​ depreciation, interest, and taxes will result from the​ renewal?   b. What net incremental operating profits after taxes will result from the​ renewal?

FINANCIAL ACCOUNTING
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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 A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.82 million plus $111,000 in installation costs. The firm will depreciate the equipment modifications under​ MACRS, using a​ 5-year recovery period​ (see table
attached.)
​
Additional sales revenue from the renewal should amount to
$1.24 million per​ year, and additional operating expenses and other costs​ (excluding depreciation and​ interest) will amount to 41% of the additional sales. The firm is subject to a tax rate of 21%.
​(Note​:Answer the following questions for each of the next 6​ years.)
 
a. What net incremental earnings before​ depreciation, interest, and taxes will result from the​ renewal?
 
b. What net incremental operating profits after taxes will result from the​ renewal?
 
c. What net incremental operating cash inflows will result from the​ renewal?
le (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 Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 45% 32% 25% 18% 15% 19% 18% 14% 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 9% 7% 4% 6% 6% 10 6% 11 4% Totals 100% 100% 100% 100% *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 ec convention. Print Done 1 2 3 45 6 7 8 9 으
Transcribed Image Text:le (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 Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 45% 32% 25% 18% 15% 19% 18% 14% 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 9% 7% 4% 6% 6% 10 6% 11 4% Totals 100% 100% 100% 100% *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 ec convention. Print Done 1 2 3 45 6 7 8 9 으
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