The following data applies to the next 3 questions.A machine costs $16,000 and is expected to produce profit before depreciation of $5,000 in each of years 1 and 2, and $6,000 in each ofyears 3 and 4. Assume that the machine is depreciated at a constant rate of $4,000 a year and that there are no taxes.How much are the average accounting earnings?$1,000B $1,250C) $1,500$1,750E) $2,000

Average Accounting earning is that earning which is earned by the investor during the period of…

Answered: The following data applies to the next…

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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The term depreciation refers to how the value of an asset (such as a car) decreases over time. There are several different approaches for calculating depreciation. Part A: In the straight-line method of calculating depreciation, the value of the item is reduced by the same amount each year. Suppose a company purchases a car for $24000. Using straight-line depreciation, the value of the car may be reduced by $2500 each year. Determine a formula for S(t), the value of the car t years after purchase. Answer: Part B: After five years, the value of the car, using the straight-line method, will be $ Part C: After twelve years, the value of the car, using the straight-line method, will be Part D: In the declining balance method of depreciation, the value of the item is reduced by the same percentage each year. Suppose the $24000 car is depreciated at a rate of 14% each year. Determine a formula for D(t), the value of the car t years after purchase. Answer: Part E: After five years, the value…
Assume that you calculated the ATER after year 3 as $275,000, the after-tax cash flow in year 4 was $6,800 and grew by 3% until year 8, and the ATER in year 8 was $300,000. Use this information to calculate the incremental IRR for not selling the property and collecting rents for years 4-8. What is the incremental IRR for not selling the property? A. 2.88% B. 4.29% C.-41.90% D. 6.40%
A machine can be purchased for $130,000 and used for five years, yielding the following income. This income computation includes annual depreciation expense of $26,000. Income Year 1 $8,800 Year 2 $21,800 Year 3 $57,000 Year 4 $32,900 Year 5 $87,200 Compute the machine's payback period. (Round payback period answer to 2 decimal places.) × Answer is complete but not entirely correct. Year Net Income Depreciation Net Cash Flow Cumulative Net Cash Flow Initial invest $ (130,000) $ (130,000) Year 1 $ 8,800 $ 26,000 34,800 34,800 x Year 2 21,800 26,000 47,800 82,600 x Year 3 57,000 26,000 83,000 130,000 × Year 4 32,900 26,000 Year 5 87,200 26,000 Payback period = 2.57 years
You buy a property for $100,000 in year 0. The building is depreciated using straight-line depreciation over 27.5 year. The NOI is $5,000 in year 1 and grows at 2% thereafter. The building is sold at a the end of year 4 at a terminal cap rate of 6%. Assume an ordinary income tax rate of 35%, a capital gains tax rate of 20%, and a depreciation recapture tax rate of 25%. What is going to be the total tax bill on the sale? O 1,187 O 1,959 O 3,146 O 3,636
What is the per-year depreciation amount if straight-line depreciation is used? Suppose a business purchases a machine for $10,000. The useful life is estimated to be 5 years, and the income tax rate is 25%. In the first year, the company makes $5,000 worth of sales using the machine, and operational expenses were $1,500.
For all questions work to 1 decimal place and assume VAT at 19%. You must justify each answer.1.- Why does a company choose to have bad debts? Explain with a numerical example. 2.- In depreciation by use (per hour), if a Fixed Asset of $1,000 has accumulated depreciation of $600, residual value of $100 and during a period the machine is used for 400 hours when its initial useful life was 40,000 hours, what depreciation should be recognised? 3.- In depreciation by use (per hour), if a fixed asset of $1,000 has accumulated depreciation of $600, residual value of $100 and during a period of time the machine is used for 400 hours when its initial useful life was 40,000 hours and at the beginning of that period there is an improvement of $200, what depreciation should be recognised? 4.- Make the entry for the recognition of the write-off of a customer to whom you had invoiced $1,000 plus VAT if the company had an Allowance for Impairment of Accounts Receivable of $600.5.- Does the Profit…
3. Solar Solutions has purchased new manufacturing equipment that cost $400,000. Calculate the yearly tax savings from the CCA tax shield for the next three years. Assume that the income tax rate is 30%, the CCA rate is 30%, and the weighted-average cost of capital (WACC) is 12%. Assume that CCA in the first year is subject to the accelerated depreciation method for the year of acquisition. (Hint. Use Microsoft Excel to calculate the discount factor(s).) (Do not round your intermediate calculations. Round your final answers to 2 decimal places.) X Answer is complete but not entirely correct. Year 1 2 3 $ $ $ PV of Tax Savings 91,071.43 x 56,919.64 X 35,574.78 X
Your business buys a copy machine for $8,000 on January 1. You estimate that the copy machine will produce 350,000 copies during its useful life; its salvage value after producing the 350,000 copies is projected to be $1,000. The copy machine produced 75,200 copies in year 1 and 68,300 copies in year 2. Calculate depreciation for each of the first two years using the units-of-production method.
Mike’s Tires purchases a new piece of equipment for $5,200. It also pays $500 for installation and$200 for delivery. If the company expects the equipment to last for 10 years, with a $900 residual value,calculate the following: a. Depreciable cost b. Straight-line rate c. Annual straight-line depreciation.
A firm has earnings of $8,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $6,000. The equipment will be depreciated over five years, and the firm pays 30 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 9.4 to 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 (30% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $

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