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

Question

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.
 

 
 
  Income Before Depreciation MACRS Depreciation Taxable Income Income Taxes Net Cash Flows
Year 1          
Year 2          
Year 3          
Year 4          
Year 5          
Year 6          

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