connect 25-9-12

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Manning Corporation is considering a new project requiring a $96,500 investment in test equipment with no salvage value. The project would produce $73,500 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 32%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Straight-Line
Depreciation

MACRS
Depreciation

Year 1

9,650

19,300

Year 2

19,300

30,880

Year 3

19,300

18,528

Year 4

19,300

11,117

Year 5

19,300

11,117

Year 6

9,650

5,558

Totals

96,500

Prepare a five-column table that reports amounts (assuming use of straight-line depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) straight-line depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the amount of income before depreciation minus the income taxes.

Prepare a five-column table that reports amounts (assuming use of MACRS depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) MACRS depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the income amount before depreciation minus the income taxes.

Compute the net present value of the investment if straight-line depreciation is used. Use 6% as the discount rate.

Compute the net present value of the investment if MACRS depreciation is used. Use 6% as the discount rate.

10 years ago

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