Problem 9-07 A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar.       Modified Accelerated   Straight-line Cost Recovery   Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $    $    $    $    Depreciation expense                     Earnings after depreciation                     Taxes (15% tax rate)                     Net earnings $    $    $    $    Cash flow $    $    $    $

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
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Problem 9-07

A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar.

 

    Modified Accelerated
  Straight-line Cost Recovery
  Year 2 Year 5 Year 2 Year 5
Earnings before depreciation and taxes $    $    $    $   
Depreciation expense                    
Earnings after depreciation                    
Taxes (15% tax rate)                    
Net earnings $    $    $    $   
Cash flow $    $    $    $   

 

 

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