A company is considering a 5-year project to expand production with the purchase of a new...

A company is considering a 5-year project to expand production with the purchase of a new automated machine using the latest technology. The new machine would cost $200,000 FOB St. Louis, with a shipping cost of $8,000 to the plant location. Installation expenses of $15,000 would also be required. This new machine would be classified as 7-year property for MACRS depreciation purposes. The project engineers anticipate that this equipment could be sold for salvage for $44,000 at the end of the project. If the corporate tax rate is 28%, what is the after tax salvage cash flow for this new machine at the end of the project? (Answer to the nearest dollar.)

MACRS percentages for depreciation each year are as follows:

   Year      %

     1     14.29
     2     24.49
     3     17.49
     4     12.49
     5      8.93
     6      8.93
     7      8.93
     8      4.45

Solutions

Expert Solution

FOB cost		200,000
Freight		8,000
Installation		15,000
Depreciatiable cost		223,000
Depreciation for 5 years		173,249
WDV		49,751
Sale price		44,000
Profit/(Loss)		(5,751)
Tax-28%		(1,610)
Sale price after tax		45,610

Depreciation	Year-1	Year-2	Year-3	Year-4	Year-5	Total
Cost	223,000	223,000	223,000	223,000	223,000
Dep Rate	14.29%	24.49%	17.49%	12.49%	8.93%
Deprecaition	31,867	54,613	39,003	27,853	19,914	173,249

jeff jeffy answered 1 year ago

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