Problem 9-07 A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Cost Recovery Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $ $ $ $ Depreciation expense Earnings after depreciation Taxes (15% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $
Problem 9-07 A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Cost Recovery Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $ $ $ $ Depreciation expense Earnings after depreciation Taxes (15% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 8PROB
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Problem 9-07
A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be
| Modified Accelerated | ||||||||
| Straight-line | Cost Recovery | |||||||
| Year 2 | Year 5 | Year 2 | Year 5 | |||||
| Earnings before depreciation and taxes | $ | $ | $ | $ | ||||
| Depreciation expense | ||||||||
| Earnings after depreciation | ||||||||
| Taxes (15% tax rate) | ||||||||
| Net earnings | $ | $ | $ | $ | ||||
| Cash flow | $ | $ | $ | $ |
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