What is the after-tax salvage value of a 3-year MACRS machine with the $10,000 purchase price if it is sold after 3 years at a salvage value of $500? The annual depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, and the tax rate is 25%. A) $935.25 B) $741 C) $560.25 D) -$60.25 E) -$241

What is the after-tax salvage value of a 3-year MACRS machine with the $10,000 purchase price if it is sold after 3 years at a salvage value of $500? The annual depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, and the tax rate is 25%. A) $935.25 B) $741 C) $560.25 D) -$60.25 E) -$241

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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Question

A) $935.25

B) $741

C) $560.25

D) -$60.25

E) -$241

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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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: 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%
A company paid $50,000 for some research equipment, which it believes will have zero salvage value at the end of its 5-year life. What is the book value of the equipment after 3 years? Next, supposing that the equipment is sold for $30,000 at the end of the third year, how much gain or depreciation capture is there? Answer questions using a)100% bonus depreciation b) Modified accelerated cost system (MACRS); research equipment belongs to the 5-year MACRS class
Consider an asset that costs $528,000 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 3-year project; at the end of the project, the asset can be sold for $66,000. If the relevant tax rate is 22 percent, what is the aftertax cash flow from the sale of this asset? $115,038.00 $104,082.00 $109,560.00 $51,480.00 $429,012.00
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.)
None
Which values am I supposed to use for the depreciation?
6) A company is considering purchasing a new automated machine that is expected to generate an additional income of $125,000 annually. The equipment will have an initial cost of $187,500 and estimated annual operating and maintenance costs of $50,000. Its estimated salvage value at the end of its useful life of 4 years will be $37,500. The equipment is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) ΕΟΥ BTCF a) 0 1 2 3 4 MACRS-GDS Deduction Taxable Income Tax ATCF b) (8 points) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new equipment?
Thank you!!
12
An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $18,720,000 and will be sold for $4,160,000 at the end of the project. If the tax rate is 22 percent, what is the aftertax salvage value of the asset?
i.3

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