Scottsdale Print Shop expects to have an annual taxable income of $300,000 from its regular business over the next two years. The company is also considering the proposed acquisition of a new printing machine to expand the current business to offer in its product catalog. The machine's installed price is $105,000. The machine falls into the MACRS five-year class, and it will have an estimated salvage value of $30,000 at the end of six years. The machine is expected to generate additional before-tax revenue of $120,000 per year.(a) Determine the company's annual marginal (incremental) tax rates over the next two years with the proposed investment in the printing machine.(b) Determine the company's annual average tax rates over the next two years with the machine.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Scottsdale Print Shop expects to have an annual taxable income of $300,000 from its regular business over the next two years. The company is also considering the proposed acquisition of a new printing machine to expand the current business to offer in its product catalog. The machine's installed price is $105,000. The machine falls into the MACRS five-year class, and it will have an estimated salvage value of $30,000 at the end of six years. The machine is expected to generate additional before-tax revenue of $120,000 per year.
(a) Determine the company's annual marginal (incremental) tax rates over the next two years with the proposed investment in the printing machine.
(b) Determine the company's annual average tax rates over the next two years with the machine.
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