r Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement. (Note: Be sure to consider the depre
r Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will depreciate the machine under MACRS using a 5-year recovery, view table attached, and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement. (Note: Be sure to consider the depre
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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Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $24,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $60,000. The firm will
(Note: Be sure to consider the depreciation in year 6.)
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%
5%
9%
8%
7
9%
7%
8
4%
6%
6%
10
6%
11
4%
Totals
100%
100%
100%
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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