Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the cost basis for depreciation purposes is $195,000. Its MV at the end of five years is estimated as $40,000. The IRS has assured you that this machine will fall under a three-year MACRS class life category. The justifications for this machine include $40,000 savings per year in labor and $30,000 savings per year in reduced materials. The before-tax MARR is 20% per year, and the effective income tax rate is 40%. Use this information to solve, Assume the stamping machine will now be used for only three years, owing to the company’s losing several government contracts. The MV at the end of year three is $50,000. What is the income tax owed at the end of year three owing to depreciation recapture (capital gain)? (a) $8,444 (b) $14,220 (c) $21,111 (d) $35,550 (e) $20,000.
Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the cost basis for
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