The annual depreciation schedule. Introduction: MACRS depreciation method: MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods. Depreciation schedule: A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

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Answer 1

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Students have asked these similar questions

Eccles Inc., a zero-growth firm, has an expected EBIT of $100.000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 e. $564,167

Refer to the data for Eccles Inc. earlier. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)? a. $475,875 b. $536,921 c. $587,750 d. $623,050 O $564,167

Warren Supply Inc. wants to use debt and common equity for its capital budget of $800,000 in the coming year, but it will not issue any new common stock. It is forecasting an EPS of $3.00 on its 500,000 outstanding shares of stock and is committed to maintaining a $2.00 dividend per share. Given these constraints, what percentage of the capital budget must be financed with debt? a. 33.84% b. 37.50% c. 32.15% d. 30.54% e. 35.63%

Answer 2

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Answer 3

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Answer 4

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 5

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 6

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

Answer 7

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

Answer 8

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

Answer 9

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

Answer 10

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

Answer 11

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

Answer 12

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 13

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 14

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Answer 15

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Answer 16

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Answer 17

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Solution Summary: The author explains the MACRS depreciation method and the formula used for the calculation of the WACC.

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