On January 1, 2018 Crane Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year. Crane is subject to a combined income tax rate, t of 40% and rounds all computations to the nearest dollar. Crane's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): PV of $1 at 14 % PV of $1 Annuity at 14% Year MACRS 0.877 33% 2018 0.877 45% 2019 0.769 1.647 15% 2020 0.675 2.322 0.592 7% 2021 2.914 The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: Multiple Choice $40,256. $59,840 $67,016. $68,000. $83,312
On January 1, 2018 Crane Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four years. The new asset: qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS) will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 (net of selling costs) will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year. Crane is subject to a combined income tax rate, t of 40% and rounds all computations to the nearest dollar. Crane's fiscal year coincides with the calendar year. Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to analyze projects using the factors and rates presented below (based on a discount rate of 14%): PV of $1 at 14 % PV of $1 Annuity at 14% Year MACRS 0.877 33% 2018 0.877 45% 2019 0.769 1.647 15% 2020 0.675 2.322 0.592 7% 2021 2.914 The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is: Multiple Choice $40,256. $59,840 $67,016. $68,000. $83,312
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 21P
Related questions
Question
Transcribed Image Text:On January 1, 2018 Crane Company will acquire a new asset that costs $400,000 and that is anticipated to have a salvage value of $30,000 at the end of four
years. The new asset:
qualifies as three-year property under the Modified Accelerated Cost Recovery System (MACRS)
will replace an old asset that currently has a tax basis of $80,000 and that can be sold on this date for $60,000 (net of selling costs)
will continue to generate the same operating revenues as the old asset ($200,000 per year). However, it is predicted that savings in cash operating costs will
be experienced as follows: a total of $120,000 in each of the first three years, and $90,000 in the fourth year.
Crane is subject to a combined income tax rate, t of 40% and rounds all computations to the nearest dollar. Crane's fiscal year coincides with the calendar year.
Assume that any gain or loss affects the taxes paid at the end of the year in which the gain or loss occurs. The company uses the net present value (NPV) method to
analyze projects using the factors and rates presented below (based on a discount rate of 14%):
PV of $1 at 14 %
PV of $1 Annuity at 14%
Year
MACRS
0.877
33%
2018
0.877
45%
2019
0.769
1.647
15%
2020
0.675
2.322
0.592
7%
2021
2.914
The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is:
Transcribed Image Text:The discounted net-of-tax amount that should be factored into Crane Company's analysis for the disposal of the old asset (rounded to the nearest whole dollar) is:
Multiple Choice
$40,256.
$59,840
$67,016.
$68,000.
$83,312
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