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cerisemallard823Lv1

28 Sep 2019

A firm is evaluating the acquisition of an asset that costs $61,200 and requires $3,570 in installation costs. If the firm depreciates the asset underâ MACRS, using aâ 5-year recovery periodâ

determine the depreciation charge for each year.

Rounded Depreciation Percentages by Recovery Year Using MACRS for

First Four Property Classes

Percentage by recovery year*

Recovery year 3 years 5 years 7 years 10 years

1 33% 20% 14% 10%

2 45% 32% 25% 18%

3 15% 19% 18% 14%

4 7% 12% 12% 12%

5 12% 9% 9%

6 5% 9% 8%

7 9% 7%

8 4% 6%

9 6%

10 6%

11 4%

Totals 100% 100% 100% 100%

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Nestor RutherfordLv2

28 Sep 2019

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Related questions

âTroy Industries purchased a new machine 5 âyear(s) ago for $78,000.

It is being depreciated under MACRS with aâ 5-year recovery period using the schedule

. Assume 40% ordinary and capital gains tax rates.

a. What is the book value of theâ machine?

b. Calculate theâ firm's tax liability if it sold the machine for each of the followingâ amounts:

$93,600â;

$54,600â;

$3,900â;

and

$2,700.

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
	Percentage by recovery year*
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				6%
11				4%
Totals	100%	100%	100%	100%

violetoyster247

firm in the third year of depreciating its onlyâ asset, which originally cost

$ 185 comma 000$185,000

and has aâ 5-year MACRS recovery period

â,

has gathered the following data relative to the currentâ year's operations:

Accruals	$ 14 comma 200$14,200
Current assets	123 comma 000123,000
Interest expense	14 comma 10014,100
Sales revenue	406 comma 000406,000
Inventory	70 comma 60070,600
Total costs beforeâ depreciation, interest and taxes	290 comma 000290,000
Tax rate on ordinary income	40 %40%

a. Use the relevant data to determine the operating cash flow for the current year.

b. Explain the impact thatâ depreciation, as well as any other noncashâ charges, has on aâ firm's cash flows.

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes

Percentage by recovery year*

Operating Cash Flow
Sales revenue	$
Less: Total costs before depreciation, interest, and taxes
Depreciation expense
Earnings before interest and taxes	$
Less: Taxes at 40%
Net operating profit after taxes (NOPAT)	$
Plus: Depreciation
Operating Cash Flow (OCF)	$

Initial investment: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $20,000; it was being depreciated under MACRS using a 5-year recovery period. (See Table 4.2 on page 120 for the applicable depreciation percentages, whick I included below.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,000 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,000 without incurring any removal or cleanup costs. The firm is subject to a 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine

Table 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes

Percentage by recovery yeara

Recovery year 3 years 5 years 7 years 10 years

Year 1 - 33%, 20%, 14%. 10%

Year 2 - 45%, 32%, 25%, 18%

Year 3 -15%, 19%, 18%, 14%

Year 4- 7%, 12%, 12%, 12%

Year 5- 12% (5year) 9% (7 years) 9% (10years)

Year 6 - 5% (5year) 9%(7year) 8%(10year)

Year 7 - 9% (7year) 7%(10year)

Year 8 - 4% (7year) 6%(10year)

Year 9 - 6%(10year)

Year 10 - 6%(10year)

Year 11 - 4%(10year)

Totals 100% 100% 100% 100%

aThese percentages have been rounded to the nearest whole percent to simplify calculations while retaining

realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded

percentages or directly apply double-declining balance depreciation using the half-year convention.

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