# Data Table: Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property ClassesThis table provides the rounded depreciation percentages for various recovery years using the Modified Accelerated Cost Recovery System (MACRS) for the first four property classes.## Percentage by Recovery Year| Recovery Year | 3 Years | 5 Years | 7 Years | 10 Years ||---------------|---------|---------|---------|----------|| 1 | 33% | 20% | 14% | 10% || 2 | 45% | 32% | 25% | 18% || 3 | 15% | 19% | 18% | 14% || 4 | 7% | 12% | 12% | 12% || 5 | | 12% | 9% | 9% || 6 | | 5% | 9% | 8% || 7 | | | 9% | 7% || 8 | | | 4% | 6% || 9 | | | | 6% || 10 | | | | 6% || 11 | | | | 4% |### Totals- **3 Years**: 100%- **5 Years**: 100%- **7 Years**: 100%- **10 Years**: 100%### NoteThese percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. **Operating Cash Inflows**A firm is considering renewing its equipment to meet increased demand for its product. The equipment modification costs total $1.99 million, with an additional $116,000 in installation expenses. The firm will depreciate these modifications using the Modified Accelerated Cost Recovery System (MACRS), over a 5-year recovery period (refer to the appropriate depreciation table for specifics).The expected increase in sales revenue due to the renewal is projected to be $1.21 million per year. However, additional operating expenses and other costs, excluding depreciation and interest, are estimated to be 43% of the additional sales revenue. The firm's tax rate is 40%.Consider the following questions for each of the next 6 years:a. What are the incremental earnings before depreciation, interest, and taxes as a result of the renewal?b. What are the incremental net operating profits after taxes resulting from the renewal?c. What are the incremental operating cash inflows generated by the renewal?**Task:**- Calculate the incremental profits before depreciation and tax and fill in the value in the provided space. (Round to the nearest dollar.)- a. The incremental profits before depreciation and tax are $ [_______]. (Round to the nearest dollar.)

Net Present Value is also known as NPV. It is a capital budegting techniques which help in decision…

Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.99 million plus $116,000 in installation. costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table). Additional sales revenue from the renewal should amount to $1.21 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) a. What incremental earnings before depreciation, interest, and taxes will result from the renewal? b. What incremental net operating profits after taxes will result from the renewal? c. What incremental operating cash inflows will result from the renewal? a. The incremental profits before depreciation and tax are $ (Round to the nearest dollar.)

Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.99 million plus $116,000 in installation. costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table). Additional sales revenue from the renewal should amount to $1.21 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) a. What incremental earnings before depreciation, interest, and taxes will result from the renewal? b. What incremental net operating profits after taxes will result from the renewal? c. What incremental operating cash inflows will result from the renewal? a. The incremental profits before depreciation and tax are $ (Round to the nearest dollar.)

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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(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,000,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,500,000 per year for each of the next 8 years. In year 8 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in year 8 the investment cash inflow totals $3,500,000. Calculate the project's NPV using a discount rate of 9 percent. If the discount rate is 9 percent, then the project's NPV is $ (Round to the nearest dollar.)
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