Question
In: Finance
Manzana Inc. is buying a piece of equipment. The equipment costs $2,000,000. The equipment is considered...
Manzana Inc. is buying a piece of equipment. The equipment costs $2,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 6 years for $400,000, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)? The marginal tax rate is 40 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%.
Solutions
Expert Solution
| Step-1:Book value at the end of year 6 | |||||
| Year end | Cost | Depreciation rate | Depreciation expense | Accumulated Depreciation expense | Book Value |
| a | b | c=a*b | d | e=a-d | |
| 1 | $ 20,00,000.00 | 20.00% | $ 4,00,000.00 | $ 4,00,000.00 | $ 16,00,000.00 |
| 2 | $ 20,00,000.00 | 32.00% | $ 6,40,000.00 | $ 10,40,000.00 | $ 9,60,000.00 |
| 3 | $ 20,00,000.00 | 19.20% | $ 3,84,000.00 | $ 14,24,000.00 | $ 5,76,000.00 |
| 4 | $ 20,00,000.00 | 11.52% | $ 2,30,400.00 | $ 16,54,400.00 | $ 3,45,600.00 |
| 5 | $ 20,00,000.00 | 11.52% | $ 2,30,400.00 | $ 18,84,800.00 | $ 1,15,200.00 |
| 6 | $ 20,00,000.00 | 5.76% | $ 1,15,200.00 | $ 20,00,000.00 | $ 00.00 |
| Step-2:After tax sale proceeds | |||||
| After tax sale proceeds | = | Before tax sale proceeds | * | (1-Tax rate) | |
| = | $ 4,00,000 | * | (1-0.40) | ||
| = | $ 2,40,000 | ||||
jeff jeffy answered 10 months agoRelated 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%;...
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%;...
(3 of 10) A new piece of specialty equipment costs $2,000,000 and will be depreciated to...
(3 of 10)
A new piece of specialty equipment costs $2,000,000 and will be
depreciated to an expected salvage value of $250,000 on a
straight-line basis over its 5-year life. Assuming a tax rate of
40%, what is its after-tax salvage value if the equipment is
actually sold after 3 years for $1,250,000?
$180,000
$500,000
$500,000
$1,130,000
$1,250,000
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...
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?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- How Can Hominin Evolution be characterized as " mosaic evolution" Use examples of species from the...
- Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of...
- Mobile and wireless devices are being increasingly used in the Business Administration and Management Industry. write...
- What are the options that might be considered in relation to introducing flexible work practices? What...
- Question 2 : Aggregate Scores: Write a program that opens 2 files, quiz.txt, and hw.txt. The...
- Define the term symbiosis specifically as it applies in a biological context. Compare and contrast parasitism,...
- A research team conducted a study showing that approximately 20% of all businessmen who wear ties...
ADVERTISEMENT