Chapter 2, Problem 2.1IP

A company is considering the purchase of a capital asset for $120,000.Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the​ straight-line method and an estimated salvage value ​(SV6​) of ​$22,000. The asset will be kept in service for six​ years, after which it will be sold for $27,000. During its useful​ life, it is estimated that the asset will produce annual revenues of ​$25,000. Operating and maintenance​ (O&M) costs are estimated to be ​$5,000 in the first year. These​ O&M costs are projected to increase by ​$500 per year each year thereafter. The after tax MARR is 15​% and the effective tax rate is 25​%. a. Compute the​ after-tax cash flows. b. Compute the​ after-tax present worth of the​ project, and use a uniform gradient in your formulation. c. The​ before-tax present worth of this asset is −​$72,738. By how much would the annual revenues have to increase to make the purchase of this asset…

Clean Company acquired a tract of land containing an extractable natural resource. Clean is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Clean maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? Oa. $4.00 Ob. $3.20 Oc. $2.60 d. $3.00

A company is considering the purchase of a capital asset for $135,000. Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the straight-line method and an estimated salvage value (SV6) of $10,000. The asset will be kept in service for six years, after which it will be sold for $ 30,000. During its useful life, it is estimated that the asset will produce annual revenues of $40,000. Operating and maintenance (O&M) costs are estimated to be $8,000 in the first year. These O&M costs are projected to increase by $ 1,200 per year each year thereafter. The after-tax MARR is 12% and the effective tax rate is 40 % .C) The before - tax present worth of this asset is -$60,000. By how much would the annual revenues have to increase to make the purchase of this asset justifiable on a before - tax basis?

A Company acquired a tract of land containing an extractable natural resource. The entity is required by the contract to restore the land to a condition suitable for recreational use after it had extracted the natural resource. Geological survey indicated that the recoverable reserves will be 1,000,000 tons and that the extraction will be completed in 10 years. Acquisition cost 9,000,000 Exploration and development costs 1,000,000 Expected cash flow for restoration cost 1,500,000 Credit-adjusted risk free interest rate 12% Using a PV of 4 decimal points, determine: (1)Total depletable cost, beginning of year (2)Depletion expense for the current year (3)Carrying amount of wasting asset, end of year

Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended 5 years beyond the original estimate of 10 years. If the asset recognition criteria are met, the cost of rebuilding the drill press should be charged to the appropriate: expense account                                     asset account accumulated depreciation account             liability account   The carrying amount of an item of property, plant and equipment that is subsequently accounted for under the cost model is equal to the historical cost less any accumulated depreciation. the fair value less any accumulated depreciation. the historical cost less any accumulated depreciation and any accumulated impairment loss. the fair value less any accumulated depreciation and any accumulated impairment loss.

A manufacturing system for fabricated metal products is purchased in the middle of the fiscal year for $800,000. The estimated salvage value after 10 years is $130,000. a. What is the MACRS-GDS property class? b. Determine the depreciation deduction during each year of the asset’s 10-year life. c. Determine the unrecovered investment at the end of each of the 10 years.

A surface mount PCB placement/soldering line is to be installed for $1,600,000. It will have a salvage value of $150,000 after 5 years. Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset's life. Click here to access the MACRS-GDS Table Calculator Part a - Your answer is partially correct. Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset's life using straight-line depreciation. EOY 0 1 Depreciation 0 640000 Balances 1600000 960000 2 384000 576000 3 234110 345600

Josephine Company acquired a tract of land containing an extractable natural resource. The entity is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological survey indicated that the recoverable reserves would be 2,000,000 tons and that the extraction will be completed in five years. Relevant cost of information follows: Land                                                                        9,000,000 Exploration and development costs                         1,000,000 Expected cash flow for restoration costs                1,500,000 Credit- adjusted risk-free interest rate                    10% PV of 1 at 10% for 5 periods                                      0.62 What is the depletion charge per ton of extracted material?

Keyser Company purchased a machine that has a manufacturer's suggested useful life of 20 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the project, the machine will be sold. a. Over how many years should the machine be depreciated? b. Why? Explain: