ASSIGNED CH 8 PROBLEM statements 11 19 23
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ISEN 410
DEPRECIATION ASSIGNED PROBLEMS
TEXT-CHAPTER 8 – MODIFIED PROBLEM STATEMENTS
Answers to be posted later.
1.
WindPower Inc. designs and commissions the manufacture of a wind-powered inverter-
based constant voltage generator for research and experimentation with low-rated, highly variable, wind fields as a form of alternative energy. The unit cost $35,000 plus $3,000 for shipping and installation. After 3 years, WindPower had no further use for the experimental unit and was able to sell it for $2,000, less $500 for removal. WindPower had depreciated the generator cost over the 3 years with an estimated life of 5 years and a terminal book value of $1,000. All of the following parts relate to financial reporting, not computing income taxes.
TAX RATE = 21%; MARR = 15%. 1.
COMPUTE THE ATCF FROM DISPOSAL USING GDS
2.
COMPUTE THE ATCF FROM DISPOSAL USING ADS.
3.
What is the $ difference between the AT disposal computed as (ATD
ALT
– ATD
GDS
)
4.
What causes the difference?
2.
08.03-PR003
A mold for manufacturing medical supplies (MACRS-GDS 5-year property) is purchased at the beginning of the fiscal year for $30,000. The estimated salvage value after 10 years
is $3,000
. Calculate the depreciation deduction and the book value during each year of the asset’s life using MACRS-GDS allowances. What is the NCF from disposal?
3.
08.03-PR019
A virtual mold apparatus for producing dental crowns permits an infinite number of shapes to be custom constructed based upon mold imprints taken by dentists. It costs $28,500 and is purchased at the beginning of the tax year. It is expected to last 9 years with no salvage value at that time. The dental supplier depreciates assets using MACRS and yet values assets of the company using straight-line depreciation. The tax rate is 21% and the MARR is 12%. ASSUME THE ASSET IS 5-YR MACRS GDS
Determine the depreciation allowance and the unrecovered investment for each year:
For tax purposes. For company valuation purposes use the conventional straight line depreciation
. Determine the conventional straight line depreciation for N = 9 years.
Compare the NCF-disposal for both the MACRS method and the traditional Straight Line method. Observations?
4.
08.03-PR030
A tractor for over-the-road hauling (motor vehicle)
is purchased for $90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Calculate the depreciation deduction and the unrecovered investment during each year of the tractor’s life using MACRS-GDS allowances. Assume MARR = 12% and T
e
=21%.
1.
What is the MACRS-GDS property class?
2.
Assume the tractor is used for the full 6 years and salvaged for $4,000. Calculate the NCF – disposal.
3.
Assume the tractor is sold during the 4th year of use for $4,000. Calculate the NCF – disposal.
4.
Assume the tractor is sold during the 3rd year of use for $4,000. Calculate the NCF – disposal.
5.
08.03-PR039
Equipment for manufacturing vegetable oil products is purchased from Alfa. Items such as oil expellers, filter presses, and a steam generator are purchased for $1.2 million. These devices are expected to be used for 11 years with no salvage value at that time. Calculate the MACRS GDS calculating yearly depreciation allowances, present worth of the depreciation allowances, and book value. MARR is 9%. What is the NCF from disposal at the end of year 11?
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