Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended. Requirement 1: Preparing 5 column table reporting following for 6 years(assuming straight line depreciation ) (a)income before depreciation and tax,(b) depreciation expenses- straight line method ,(c) income taxable,(d) income tax,(e) net cash flow , it equals the amount of income before depreciation and deduct taxes.

Question

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Answer 1

Question

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

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Answer 2

Question

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

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Answer 3

Question

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

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Answer 4

Question

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

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Answer 5

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

Answer 6

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Answer 7

Chapter 11, Problem 3PSA

To determine

Concept introduction:

Net present value is the difference between the present value of inflow and the present value of outflows if the net present value is positive project is recommended.

Requirement 1:

Preparing 5 column table reporting following for 6 years(assuming straight line depreciation) (a)income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Answer 8

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-straight line 123 B	Income taxable 123 C	40% income taxed 123 D = C*.40	Profit after tax(PAT) 123 E = C-D	Cash flow after taxes 123 F = A-D
1	66000	9000	57000	22800	34200	43200
2	66000	18000	48000	19200	28800	46800
3	66000	18000	48000	19200	28800	46800
4	66000	18000	48000	19200	28800	46800
5	66000	18000	48000	19200	28800	46800
6	66000	9000	57000	22800	34200	43200

Answer 13

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Answer 14

To determine

Concept introduction:

Net present value is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 2:

To explain:

Preparing 5 column table reporting following for 6 years(assuming MACRS depreciation) (a) income before depreciation and tax,(b) depreciation expenses-straight line method ,(c) income taxable,(d) income tax,(e) net cash flow, it equals the amount of income before depreciation and deduct taxes.

Answer 15

Expert Solution

Answer to Problem 3PSA

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

year	Income before depreciation 123 A	Depreciation-MACRS 123 B	Income taxable 123 C	40% income taxed 123 D=C*.40	Profit after tax(PAT) 123 E=C-D	Cash flow after taxes 123 F=A-D
1	66000	18000	48000	19200	28800	46800
2	66000	28800	37200	14880	22320	51120
3	66000	17280	48720	19488	29232	46512
4	66000	10368	55632	22252.8	33379.2	43747.2
5	66000	10368	55632	22252.8	33379.2	43747.2
6	66000	5184	60816	24326.4	36489.6	41673.6

Answer 20

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

Answer 21

To determine

Concept introduction:

Net present value is the difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 3:

Computation of net present value(NPV) of the investment if staright line depreciation method is used, using 10% discount rate.

Answer 22

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

108521.4

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	43200	.909090909	39272.73
2	46800	.826446281	38677.69
3	46800	.751314801	35161.53
4	46800	.683013455	31965.03
5	46800	.620921323	29059.12
6	43200	.56447393	24385.27
Total A			198521.4
Cash outflow B			90000
Net present value(NPV) A-B			108521.4

Answer 27

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

Answer 28

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 4:

Computation of net present value(NPV) of the investment if MAcrs depreciation method is used, using 10% discount rate.

Answer 29

Expert Solution

Answer to Problem 3PSA

Net present value(NPV)

110305.7

Answer 30

Expert Solution

Answer 31

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Year	Cash flow after tax	Present value at 10% of 1	Net present value(NPV)
1	46800	.909090909	42545.45
2	51120	.826446281	42247.93
3	46512	.751314801	34945.15
4	43747.2	.683013455	29879.93
5	43747.2	.620921323	27163.57
6	41673.6	.56447393	23523.66
Total A			200305.7
Cash outflow B			90000
Net present value(NPV) A-B			110305.7

Answer 34

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

Answer 35

To determine

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Answer 36

Expert Solution

Answer to Problem 3PSA

Using MARCS depreciation net present value (NPV) is greater than the net present value (NPV) using straight-line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation is deducted at a larger amount leading to fewer income taxes paid in starting years.

Answer 37

Expert Solution

Answer 38

Expert Solution

Answer 39

Expert Solution

Answer 40

Explanation of Solution

Using MARCS depreciation net present value (NPV) is greater than the net present value(NPV) using straight line depreciation as the cash flows are higher in the starting year of asset’s life under MARCS depreciation. Due to which depreciation are deducted at larger amount leading to less income taxes payment in starting years.

Answer 41

Ch. 11 - Prob. 1MCQ Ch. 11 - Prob. 2MCQ Ch. 11 - Prob. 3MCQ Ch. 11 - Prob. 4MCQ Ch. 11 - Prob. 5MCQ Ch. 11 - Prob. 1DQ Ch. 11 - What is capital budgeting?Ch. 11 - Identify four reasons that capital budgeting...Ch. 11 - Prob. 4DQ Ch. 11 - Prob. 5DQ

Concept explainers

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.

Answer to Problem 3PSA

Explanation of Solution

Want to see more full solutions like this?

Chapter 11 Solutions

Concept explainers

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Answer to Problem 3PSA

Explanation of Solution

Concept introduction: Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended. Requirement 5: MARC’s depreciation method increases the net present value(NPV) of this project’s.

Answer to Problem 3PSA

Explanation of Solution

Want to see more full solutions like this?

Chapter 11 Solutions

Concept introduction:

Net present value-is difference between present value of inflow and present value of outflows, if net present value is positive project is recommended.

Requirement 5:

MARC’s depreciation method increases the net present value(NPV) of this project’s.