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 3. Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate. Chart Values are Based on:i =YearNet Cash InflowxPV Factor=Present Value1=2=3=4=5=6=Net present value
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 | |||||
3. Compute the
Chart Values are Based on:i =YearNet Cash InflowxPV Factor=Present Value1=2=3=4=5=6=Net present value
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