Contemporary Financial Management, Loose-leaf Version
14th Edition
ISBN: 9781337090636
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: South-Western College Pub
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Chapter 9.A, Problem 3P
Summary Introduction
To determine: The annual MACRS
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A surface mount PCB placement/soldering line is to be installed for $1,400,000. It will have a salvage value of $70,000 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
Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset's life using
declining balance depreciation using double declining balance switching to straight line depreciation.
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Sum depreciation
Depreciation
Balance
A surface mount PCB placement/soldering line is to be installed for $1,000,000. It will have a salvage value of $90,000 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
Determine the depreciation deduction and the resulting unrecovered investment during each year of the asset's life using
declining balance depreciation using double declining balance switching to straight line depreciation.
EOY
Depreciation
Balance
1
3
4
Sum depreciation
Round entry to two decimal places. The tolerance is ±10.
The equipment has a delivered cost of $58,000. An additional $4,000 is required to install the new equipment. The new control device falls into the 7-year class for depreciation and will be depreciated using MACRS. At the end of 8 years, the estimated Salvage Value of the new equipment is $20,000.The existing control device has been in use for approximately 10 years, and it has been fully depreciated (that is, its book value is zero for the old device). However, its current market value for the old device is estimated to be $5,000. The applicable tax rate is 34%. The new control device requires lower maintenance costs and frees personnel who would otherwise monitor the system. In addition, it reduces product wastage. In total, it is estimated that during its eight-year life, the yearly savings will amount to $20,000 if the new control device is used. Yearly sales revenue is unchanged. The illustrative firm’s cost of capital is 15%.
Since the new machine is more efficient, that it will…
Chapter 9 Solutions
Contemporary Financial Management, Loose-leaf Version
Ch. 9.A - Prob. 1QTDCh. 9.A - Prob. 1PCh. 9.A - Prob. 2PCh. 9.A - Prob. 3PCh. 9.A - Prob. 4PCh. 9.A - Prob. 5PCh. 9 - Prob. 1QTDCh. 9 - Prob. 2QTDCh. 9 - Prob. 3QTDCh. 9 - Prob. 4QTD
Ch. 9 - Prob. 5QTDCh. 9 - Prob. 6QTDCh. 9 - Prob. 7QTDCh. 9 - Prob. 8QTDCh. 9 - Prob. 9QTDCh. 9 - Prob. 10QTDCh. 9 - Prob. 11QTDCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22P
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- Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.arrow_forwardUrquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.arrow_forwardA piece of newly purchased industrial equipment costs $1,030,000 and is classified as seven-year property under MACRS (MACRS Schedule). Calculate the annual depreciation allowances and end-of-the-year book values for this equipment.arrow_forward
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- 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…arrow_forwardA company is considering the purchase of a capital asset for $100,000. Installation charges needed to make the asset serviceable will total $30,000. 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 $20,000. During its useful life, it is estimated that the asset will produce annual revenues of $30,000. Operating and maintenance (O&M) costs are estimated to be $6,000 in the first year. These O&M costs are projected to increase by $1,000 per year each year thereafter. The after tax MARR is 12% and the effective tax rate is 40%. Solve, a. Use the tabular format given in the shown Figure to 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 –$50,070. By how much would the annual revenues have to…arrow_forwardA 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?arrow_forward
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