Question
In: Finance
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $464,000. Of this sum, $58,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $58,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense? b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? (Round your answer to the nearest whole dollar amount.)
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The
company has just ordered a new kiln for $704,000. Of this sum,
$88,000 is described by the supplier as an installation cost. Ms.
Potts does not know whether the Internal Revenue Service (IRS) will
permit the company to treat this cost as a tax-deductible current
expense or as a capital investment. In the latter case, the company
could depreciate the $88,000 straight-line over 5 years. The tax
rate...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The
company has just ordered a new kiln for $640,000. Of this sum,
$80,000 is described by the supplier as an installation cost. Ms.
Potts does not know whether the Internal Revenue Service (IRS) will
permit the company to treat this cost as a tax-deductible current
expense or as a capital investment. In the latter case, the company
could depreciate the $80,000 straight-line over 5 years. The tax
rate...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The
company has just ordered a new kiln for $640,000. Of this sum,
$80,000 is described by the supplier as an installation cost. Ms.
Potts does not know whether the Internal Revenue Service (IRS) will
permit the company to treat this cost as a tax-deductible current
expense or as a capital investment. In the latter case, the company
could depreciate the $80,000 straight-line over 5 years. The tax
rate...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The
company has just ordered a new kiln for $420,000. Of this sum,
$52,000 is described by the supplier as an installation cost. Ms.
Potts does not know whether the Internal Revenue Service (IRS) will
permit the company to treat this cost as a tax-deductible current
expense or as a capital investment. In the latter case, the company
could depreciate the $52,000 using the five-year MACRS tax
depreciation schedule....
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered...
Ms. T. Potts, the treasurer of Ideal China, has a problem. The
company has just ordered a new kiln for $400,000. Of this sum,
$50,000 is described by the supplier as an installation cost. Ms.
Potts does not know whether the Internal Revenue Service (IRS) will
permit the company to treat this cost as a tax-deductible current
expense or as a capital investment. In the latter case, the company
could depreciate the $50,000 using the five-year MACRS tax
depreciation schedule....
Problem 9-24 Depreciation and Project Value (LO3) Ms. T. Potts, the treasurer of Ideal China, has...
Problem 9-24 Depreciation and Project Value (LO3)
Ms. T. Potts, the
treasurer of Ideal China, has a problem. The company has just
ordered a new kiln for $400,000. Of this sum, $50,000 is described
by the supplier as an installation cost. Ms. Potts does not know
whether the Internal Revenue Service (IRS) will permit the company
to treat this cost as a tax-deductible current expense or as a
capital investment. In the latter case, the company could
depreciate the $50,000...
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