Concept explainers
MACRS stands for modified accelerated cost recovery system. Life of the asset will be classified as per the internal revenue code.
Three years MACRS rates, Year 1: 33.33%, Year 2: 44.45%, Year 3: 14.81% and Year 4: 7.41%.
CWC bought machine that is expected to generate $25,000 in operating income before
Explanation of Solution
a.
Calculate the after tax operating income as follows:
Formulas:
b.
Calculate the operating cash flows for year 1 as follows:
Therefore, the operating cash flows in year 1 is
Calculate the operating cash flows for year 2 as follows:
Therefore, the operating cash flows in year 2 is
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