Depreciation : Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset. Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets. MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year. Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy. a. To Determine: Annual depreciation associated with the equipment.

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Answer 1

Question

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

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Crenshaw, Incorporated, is considering the purchase of a $367,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $67,000 in five years. The computer will replace five office employees whose combined annual salaries are $112,000. The machine will also immediately lower the firm's required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 15 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV Answer is complete but not entirely correct. S 103,141.80

Your firm is contemplating the purchase of a new $610,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $66,000 at the end of that time. You will save $240,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $81,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %

Answer 2

Question

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Expert Solution & Answer

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Answer 3

Question

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Expert Solution & Answer

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Answer 5

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Answer 6

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

Answer 7

Chapter 9, Problem 24P

Summary Introduction

Depreciation: Depreciation is a decline in the value of assets after some period of time due to use. It is charged on the cost of assets over the depreciable life of the asset.

Straight-line depreciation method: The amount of depreciation calculated in this method remains same over the useful life of the asset. This method is known as fixed installment method. Depreciation is calculated only one time and the same amount of depreciation is charged over the useful life of assets.

MACRS depreciation schedule: The depreciation method which allows the greater amount of subtraction in the value of assets. Under this method, assets are written off with the greater amount in the earlier year and with the smaller amount in the later year.

Depreciation tax shield: Depreciation tax shield is the tax saving which results from the ability to deduct the depreciation. It is the technique to reduce the depreciation from the taxable income which shows low taxable income and helps to save tax. Depreciation is noncash expenses because there is no flow of cash actually, thus company claim depreciation as a tax deduction to show lower income and pay less tax. Thus, depreciation tax shield is tax avoidance strategy.

a.

To Determine: Annual depreciation associated with the equipment.

Answer 8

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

Answer 9

b.

Summary Introduction

To Determine: Annual depreciation tax shield.

Answer 10

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

Answer 11

c.

Summary Introduction

To Determine: Depreciation tax shield under marcs depreciation schedule.

Answer 12

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

Answer 13

d.

Summary Introduction

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

Answer 14

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Answer 15

e.

Summary Introduction

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

Answer 16

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Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. 9 - Prob. 1CC Ch. 9 - Prob. 2CC Ch. 9 - Prob. 3CC Ch. 9 - 4. Why do we focus on incremental revenues and...Ch. 9 - Prob. 5CC Ch. 9 - Prob. 6CC Ch. 9 - Prob. 7CC Ch. 9 - Prob. 8CC Ch. 9 - What is sensitivity analysis?Ch. 9 - How does scenario analysis differ from sensitivity...

To Determine: Annual depreciation tax shield.

To Determine: Depreciation tax shield under marcs depreciation schedule.

To Determine: The schedule suitable if the corporate tax rate is expected to remain constant.

To Determine: The method suitable if marginal tax rate will increase substantially over next five years.

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Chapter 9 Solutions