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 $20,300; it was being depreciated under MACRS using a 5-year recovery period. (See table attached) for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,800 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine.
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 $20,300; it was being depreciated under MACRS using a 5-year recovery period. (See table attached) for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,800 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine.
Century 21 Accounting Multicolumn Journal
11th Edition
ISBN:9781337679503
Author:Gilbertson
Publisher:Gilbertson
Chapter19: Accounting For Plant Assets, Depreciation, And Intangible Assets
Section19.5: Declining-balance Method Of Depreciation
Problem 1OYO
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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 $20,300; it was being depreciated under MACRS using a 5-year recovery period. (See table attached) for the applicable
Transcribed Image Text:Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
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%
45%
32%
25%
18%
3
15%
19%
18%
14%
4
7%
12%
12%
12%
12%
9%
9%
6.
5%
9%
8%
9%
7%
7
4%
6%
8.
6%
6%
10
4%
11
100%
100%
100%
Totals
100%
*These 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 (200%) depreciation using the half-year
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