EscYou consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. Theequipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of netincome before taxes and depreciation each year by using this upgraded system. The combined federal and state income taxrate= 35%. Annual inflation = 4%.a. Fill in the following table assuming MACRS depreciation ratesYear46°FRain showers01F1 2O2345Pretaxincome6MACRS TaxableDepreciation incomeF2 -F3 +F4Ⓡb. If your MARR = 12%, should you purchase this system based on your real after-tax income? Why or why not?F58CBTax owedF6Q SearchGAfter taxincomeF7 Ca7F8OInflationadjustmentfactorOF9alaLGF10Real aftertax income0AITHEF11 -01asodF12 +Prt ScScrLkPost-itsodInsPost-itDelBackspacePost-itPgUpHomeasod>Post-itMumi1-10PgOnEndPauseBreak11-1511-15C

MACRS stands for modified accelerated cost recovery system, this system is used in the US that…

You consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. The equipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of net income before taxes and depreciation each year by using this upgraded system. The combined federal and state income tax rate= 35%. Annual inflation = 4%. a. Fill in the following table assuming MACRS depreciation rates Year 0 Pretax MACRS Taxable income Depreciation income Tax owed After tax income Inflation adjustment factor Real after tax income

You consider purchasing a new piece of equipment (7yr MACRS property) for your manufacturing process for $120,000. The equipment has a 6-year useful life and no salvage value. The equipment is expected to generate an additional $40,000 of net income before taxes and depreciation each year by using this upgraded system. The combined federal and state income tax rate= 35%. Annual inflation = 4%. a. Fill in the following table assuming MACRS depreciation rates Year 0 Pretax MACRS Taxable income Depreciation income Tax owed After tax income Inflation adjustment factor Real after tax income

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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Consider an asset that costs $700,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $151,000. If the relevant tax rate is 23 percent, what is the aftertax cash flow from the sale of this asset? Aftertax salvage value=
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Suppose that a company is considering a machine acquisition. The new machine will cost $60.000 and the shipping and installation costs are $20.000 , all are paid in cash. The old machine is fully depreciated and will be sold for $5.000 cash immediately with the purchase of the new one. The useful life of the new machine is 5 years and the company uses accelerated method of depreciation. Tax rate is 20% for the company.Please find the investment cash outflow?
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