Specialty Machining, Inc. bought a new multi-turret turning center for $250,000. The machine generated new revenue of $80,000 per year. Operating costs for the machine averaged $10,000 per year. Following IRS regulations, the machine was depreciated using the MACRS method, with a recovery period of 7 years. The center was sold for $75,000 after 5 years of service. The company uses an aftertax MARR rate of 12% and is in the 23% tax bracket. Determine the after-tax net present worth of this asset over the 5-year service period.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Specialty Machining, Inc. bought a new multi-turret turning center for $250,000. The machine generated new revenue of $80,000 per year. Operating costs for the machine averaged $10,000 per year. Following IRS regulations, the machine was
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