Manzana Inc. is buying a piece of equipment. The equipment costs $1,000,000. The equipment is considered...

Manzana Inc. is buying a piece of equipment. The equipment costs $1,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 4 years for $200,000, what is termination value of the equipment (the after-tax cash flow from the sale of this asset)? The marginal tax rate is 20 percent. The Annual expense percentage for a 5-year MACRS property from year 1 to 6 respectively are: 20.00%; 32.00%; 19.20%; 11.52%; 11.52: and 5.76%. PLEASE SHOW ALL STEPS!!

Solutions

Expert Solution

Sales Value		a	$ 2,00,000
Book Value		b	$ 1,72,800
Profit (loss) on sale of asset		c=a-b	$ 27,200
Tax on profit (loss) on sale		d=c*20%	$ 5,440
After tax sale proceeds		e=a-d	$ 1,94,560

Working:

Depreciation Schedule:

Year	Cost	Depreciation Rate	Depreciation Expense	Accumulated depreciation Expense	Book Value at the end of year
	a	b	c=a*b	d	e=a-d
1	$ 10,00,000	20.00%	$ 2,00,000	$ 2,00,000	$ 8,00,000
2	$ 10,00,000	32.00%	$ 3,20,000	$ 5,20,000	$ 4,80,000
3	$ 10,00,000	19.20%	$ 1,92,000	$ 7,12,000	$ 2,88,000
4	$ 10,00,000	11.52%	$ 1,15,200	$ 8,27,200	$ 1,72,800

jeff jeffy answered 2 hours ago

Next > < Previous

Related Solutions

Manzana Inc. is buying a piece of equipment. The equipment costs $4,000,000. The equipment is considered...

Manzana Inc. is buying a piece of equipment. The equipment costs $4,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 5 years for $500,000, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)? The marginal tax rate is 30 percent. The annual expense percentage for a 5-year MACRS property from year 1 to 6 respectively are: 20.00%; 32.00%; 19.20%;...

Praeda Inc. has the choice of buying a piece of equipment or leasing it. The purchase...

Praeda Inc. has the choice of buying a piece of equipment or leasing it. The purchase cost of the equipment will be $150,000. For tax purposes, the depreciation on the machine will be full, straight-line depreciation over 8 years. The machine will be used for 5 years, regardless of whether it is purchased or leased. The machine is expected to have a market value of $76,250 at the end of the 5 years. The lessor will require annual payments of...

A firm is negotiating a lease on a new piece of equipment that would cost $1,000,000...

A firm is negotiating a lease on a new piece of equipment that would cost $1,000,000 if purchased. The equipment falls into the MACRS 3-year class. The depreciation would be 33%, 45%, 15%, and 7% for years 1, 2, 3, and 4 respectively. The equipment would be used for 3 years and sold. It is estimated that it would be sold after three years for $300,000. A maintenance contract on the equipment would cost $30,000 per year if purchased. Conversely,...

TA, Inc. is considering replacing a piece of old equipment with a piece of new equipment....

TA, Inc. is considering replacing a piece of old equipment with a piece of new equipment. Details for both are given below: Old Equipment New Equipment Current book value $1,500,000 Current market value $2,500,000 Acquisition cost $6,200,000 Remaining life 10 years Life 10 years Annual sales $350,000 Annual sales $850,000 Cash operating expenses $140,000 Cash operating expenses $500,000 Annual depreciation $150,000 Annual depreciation $620,000 Accounting salvage value $0 Accounting salvage value $0 Expected salvage value after 10 years $240,000 Expected...

TA, Inc. is considering replacing a piece of old equipment with a piece of new equipment....

TA, Inc. is considering replacing a piece of old equipment with a piece of new equipment. Details for both are given below: Old Equipment New Equipment Current book value $1,800,000 Current market value $2,500,000 Acquisition cost $6,200,000 Remaining life 10 years Life 10 years Annual sales $350,000 Annual sales $850,000 Cash operating expenses $140,000 Cash operating expenses $500,000 Annual depreciation $180,000 Annual depreciation $620,000 Accounting salvage value $0 Accounting salvage value $0 Expected salvage value $240,000 Expected salvage value $750,000...

Bene Company is considering selling a piece of factory equipment and buying new equipment to replace...

Bene Company is considering selling a piece of factory equipment and buying new equipment to replace it. Identify two cash flows that must be considered and how they would be determined.

A new piece of equipment costs $25,000. The annual cost of using the equipment is projected...

A new piece of equipment costs $25,000. The annual cost of using the equipment is projected to be $1000. Annual maintenance costs are expected to be $400 the first year, increasing by $75/yr each year after that. The effective annual interest rate is 5%. Using correct equivalence notation, write out (but do not solve) the equation that would be used to find the equivalent annual cost of purchasing the equipment for its 20-year lifespan.

You are thinking about buying a piece of art that costs $50,000. The art dealer is...

You are thinking about buying a piece of art that costs $50,000. The art dealer is proposing the following? deal: He will lend you the? money, and you will repay the loan by making the same payment every two years for the next 10 years? (i.e., a total of 5 ?payments). If the interest rate is 7% per? year, how much will you have to pay every two? years?

You are thinking about buying a piece of art that costs $20,000. The art dealer is...

You are thinking about buying a piece of art that costs $20,000. The art dealer is proposing the following deal: He will lend you the money, and you will repay the loan by making the same payment every two years for the next 30 years. If the interest rate is 10% per year, how much will you have to pay every two years?

A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and...

A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and no salvage value at the end of its useful life. The equipment generates revenues of $650,000 per year and operating expenses of $300,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%? Revenue Expense Year 0 - $1,500,000 (investment) ...

Subjects