Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3 [The following information applies to the questions displayed below.] Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $72,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.) Straight-LineDepreciation MACRSDepreciation Year 1 $ 10,000 $ 20,000 Year 2 20,000 32,000 Year 3 20,000 19,200 Year 4 20,000 11,520 Year 5 20,000 11,520 Year 6 10,000 5,760 Totals $ 100,000 $ 100,000 Problem 25-3A Part 2 2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes. Income Before Depreciation MACRS Depreciation Taxable Income Income Taxes Net Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3
[The following information applies to the questions displayed below.]
Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $72,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)
| Straight-Line Depreciation |
MACRS Depreciation |
||||||||
| Year 1 | $ | 10,000 | $ | 20,000 | |||||
| Year 2 | 20,000 | 32,000 | |||||||
| Year 3 | 20,000 | 19,200 | |||||||
| Year 4 | 20,000 | 11,520 | |||||||
| Year 5 | 20,000 | 11,520 | |||||||
| Year 6 | 10,000 | 5,760 | |||||||
| Totals | $ | 100,000 | $ | 100,000 | |||||
Problem 25-3A Part 2
2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes.
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Expert Answer
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