Geller Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $400,000 is estimated to result in $155,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $68,000. The press also requires an initial investment in spare parts inventory of $13,000, along with an additional $1,800 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and the project's required return is 10 percent. Refer to Table 8.3.what is the NPV of this project? TABLE 8.3Depreciation under ModifiedAccelerated Cost RecoverySystem (MACRS)RECOVERY PERIOD CLASS5 YEARS7 YEARSYEAR3 YEARS10 YEARS15 YEARS20 YEARS1.33332000.1429.1000.0500.037502.444532002449.1800.0950.072193.1481.1920.1749.1440.0855.066774.0741.1152.1249.1152.0770.06177.1152.0893.0922.0693.057136.0576.0892.0737.0623.052857.0893.0655.0590,04888.0446.0655.0590.04522.0656.0591.0446210.0655.0590.0446111.0328.0591.04462120590.0446113.0591.0446214.0590.0446115.0591.0446216.0295.0446117.0446218.0446119.0446220.0446121.02231Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946. How to Depreciate Propertyand other details on depreciation are presented later in the chapter. Note that five-year depreciation actually carries over six years because theIRS assumes purchase is made in midyear.

Year EBDT Depreciation Rate Depreciation (Cost*Rate) PBT(EBDT -Depreciation) Tax@22%(PBT*Rate) Net…

the MACRS five-year class, and it will have a salvage value at the end of the project of $68,000. The press also requires an initial investment in spare parts inventory of $13,000, along with an additional $1,800 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and the project's required return is 10 percent. Refer to Table 8.3. what is the NPV of this project?

the MACRS five-year class, and it will have a salvage value at the end of the project of $68,000. The press also requires an initial investment in spare parts inventory of $13,000, along with an additional $1,800 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and the project's required return is 10 percent. Refer to Table 8.3. what is the NPV of this project?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter5A: Depreciation Methods

Section: Chapter Questions

Problem 4SEB: MODIFIED ACCELERATED COST RECOVERY SYSTEM Using the information given in Exercise 5Apx-1B and the...

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PQ16.09 An asset with a first cost of $100,000 is depreciated over 5-year period. It is expected to have a $10,000 salvage value at the end of 5 years. Using the straight-line method, what is the book value at the end of year 2?
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29 Assume that you have purchased an asset for OMR 10000 and expecting the useful life of 10 years. If you have charged the total depreciation of OMR 8000 over its useful life, calculate the residual value of the asset. a. OMR 20000 b. OMR 8000 c. OMR 2000 d. OMR 18000
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Lotus contractors construction. Building cost= $13650000. Weighted average accumulated expenditures = $5600000 Actual interest was $562000, and avoidable interest was $272000. If the salvage value is $1150000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is A.$319300 B.$348050 C.$326100 D.$459300
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