Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3 [The following information applies to the questions displayed below.] Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $72,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.) Straight-LineDepreciation MACRSDepreciation Year 1 $ 10,000 $ 20,000 Year 2 20,000 32,000 Year 3 20,000 19,200 Year 4 20,000 11,520 Year 5 20,000 11,520 Year 6 10,000 5,760 Totals $ 100,000 $ 100,000 Problem 25-3A Part 2 2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes. Income Before Depreciation MACRS Depreciation Taxable Income Income Taxes Net Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

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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Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3

[The following information applies to the questions displayed below.]

Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $72,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

	Straight-Line Depreciation		MACRS Depreciation
Year 1		$	10,000	$	20,000
Year 2			20,000		32,000
Year 3			20,000		19,200
Year 4			20,000		11,520
Year 5			20,000		11,520
Year 6			10,000		5,760
Totals		$	100,000	$	100,000

Problem 25-3A Part 2

2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes.

	Income Before Depreciation	MACRS Depreciation	Taxable Income	Income Taxes	Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6

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