Problem An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,100,000 and will be sold for $1,300,000 at the end of the project. If the tax rate is 27%, what is the after-tax salvage value of the asset? MACRS Depreciation: 1 2 3 4 5 6 7 8 3 year class 33.33% 44.45% 14.81% 7.41% 5 year class 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7 year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%

Problem An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,100,000 and will be sold for $1,300,000 at the end of the project. If the tax rate is 27%, what is the after-tax salvage value of the asset? MACRS Depreciation: 1 2 3 4 5 6 7 8 3 year class 33.33% 44.45% 14.81% 7.41% 5 year class 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7 year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%

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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Input area: Installation cost Pretax salvage value Operating cost per year Initial NWC Tax rate Discount rate *Depreciation straight-line over life Output area: Annual depreciation charge Aftertax salvage value OCF NPV $ SA SA SA GA $ 385,000 $ 60,000 $ 135,000 35,000 21% 10% ᏌᏊ Ꮚ Ꮚ $ 77,000 $ 47,400 $ 122,820 5
Problem: A leasing company is planning to purchase an asset for $15,000 with a 6-year life and assume no salvage value. The company can depreciate the asset over its useful life using a straight-line depreciation method. The company has just issued five-year notes at an interest rate of 10% per year. Tax rate = 21%. Maintenance (and other) costs = $1,350 per year for years 1-4, $2,200 per year for years 5-6. What is the after-tax break-event rent for this lease if payments occur at the beginning of the periods? (Hint: Use an excel sheet to solve this problem. You need to draw the lease cash flow table.)
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What is the NPV of a project that costs $100,000, provides $23,000 in cash flows annually for six years, requires a $5,000 increase in net working capital (recaptured at the end), and depreciates the asset at 15 percent declining balance over six years and sold at zero salvage value? The discount rate is 14 percent. The tax rate is 40 percent $6,136.52 -$29639.22 -$23,460 -$13,283
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Net Salvage Value Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $23.2 million, of which 85% has been depreciated. The used equipment can be sold today for $5.8 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.
A project using passive heating/cooling design con- a cepts to reduce energy costs requires an investment of $125,000 in equipment (straight-line deprecia- tion with a 10-year depreciable life and $0 salvage value), and $30,000 in labor (not depreciable). At the end of 10 years, the project will be terminated. Assuming a combined tax rate of 34% and after- tax MARR of l15%, determine the project's after-tax present worth.