Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 19, Problem 8P
Summary Introduction

To determine: The free cash flow of I Company.

Introduction:

Free cash flow indicates the amount of cash a firm has after spending on all capital expenditures. Free cash flow to equity indicates the amount available to the equity shareholders of a company after all the expenses.

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Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1, Table 2, and Table 5.) Asset Date Placed in Service Original Basis Machinery October 25 $ 70,000 Computer equipment February 3 10,000 Delivery truck*Footnote asterisk March 17 23,000 Furniture April 22 150,000 Total   $ 253,000 *Footnote asteriskThe delivery truck is not a luxury automobile. In addition to these assets, Convers installed qualified real property (MACRS, 15 year, 150% DB) on May 12 at a cost of $300,000.   a. What is the allowable MACRS depreciation on Convers's property in the current year assuming Convers does not elect §179 expense and elects out of bonus depreciation?
Last Chance Mine (LCM) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1–3, LCM extracted 13,000 tons of coal as follows: (1) Tons of Coal (2) Basis Depletion (2) ÷ (1) Rate Tons Extracted per Year Year 1 Year 2 Year 3 12,000 $ 750,000 $ 62.50 2,000 7,200 3,800  Using the cost and percentage depletion computations from parts (a) and (b), what is LCM's actual depletion expense for each year?
Assume that ACW Corporation has 2024 taxable income of $1,500,000 for purposes of computing the §179 expense. The company acquired the following assets during 2024 (assume no bonus depreciation): (Use MACRS Table 1, Table 2, and Table 5.) Asset Placed in Service Basis Machinery September 12 $ 470,000 Computer equipment February 10 70,000 Delivery truck August 21 93,000 Qualified real property (MACRS, 15 year, 150% DB) April 2 1,380,000 Total   $ 2,013,000 What is the maximum amount of §179 expense ACW may deduct for 2024? What is the maximum total depreciation that ACW may deduct in 2024 on the assets it placed in service in 2024?
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