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CSUF – Fall 2015 HW #3 Name: ______________________ EG-ME401 – Spring 2016 DUE 4/19/16 ______________________ ______________________

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Four problems, 20 pt. each. Credit for correct detail answer only.

Problem 11-15 - Consider a $6500 piece of machinery, with a 5-year depreciable life

and an estimated $1200 salvage value. The projected utilization of the machinery

when it was purchased, and its actual production to date, are as shown: Compute the depreciation schedule using:

(a) Straight line (b) Sum-of-years’-digits (c) Double declining balance (d) Unit of

production (for first 2 years only) (e) Modified accelerated cost recovery system

Analysis:

Problem 11-19 - The depreciation schedule for an asset, with a salvage value of

$90 at the end of the recovery period, has been computed by several methods.

Identify the depreciation method used for each schedule.

Analysis:

EGME-401 HW #3

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Problem 12-18 - ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected

to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective

income tax rate of 50%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%,

would this be a good investment or not?

Analysis

Problem 12-37 - A corporation with a 34% combined income tax rate is considering the following

investment in research equipment and has projected the benefits as shown.

Prepare and after-tax cash flow table assuming MACRS depreciation.

(a) What is before-tax rate of return?

(b) What is after-tax rate of return

Analysis: