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r Corporation is considering replacing a machine. The replacement will reduce operating expenses​ (that is, increase earnings before​ depreciation, interest, and​ taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book​ value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5​-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement.​  (Note: Be sure to consider the depre

r Corporation is considering replacing a machine. The replacement will reduce operating expenses​ (that is, increase earnings before​ depreciation, interest, and​ taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book​ value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5​-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement.​  (Note: Be sure to consider the depre

Essentials Of Investments
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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  Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses​ (that is, increase earnings before​ depreciation, interest, and​ taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book​ value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5​-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement.​ 

(Note: Be sure to consider the depreciation in year​ 6.)

(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year" Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 7 9% 7% 8 4% 6% 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year eck onvontion 69°F Mostly c. ASUS
Transcribed Image Text:(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year" Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 7 9% 7% 8 4% 6% 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year eck onvontion 69°F Mostly c. ASUS
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