Question
In: Finance
Depreciation expense. Richardses' Tree Farm, Inc. has just purchased a new aerial tree trimmer for...
Depreciation expense. Richardses' Tree Farm, Inc. has just purchased a new aerial tree trimmer for $91 comma 000. Calculate the depreciation schedule using a seven-year life (for the property class category of a single-purpose agricultural and horticultural structure from Table 10.3) for both straight-line depreciation and MACRS, LOADING.... Use the half-year convention for both methods. Compare the depreciation schedules before and after taxes using a 40% tax rate. What do you notice about the difference between these two methods? Using a seven-year life, straight-line depreciation, and the half-year convention for the first and last years, what is the annual depreciation of the trimmer?
Solutions
Expert Solution
Annual straight line depreciation is cost of tree-trimmer divided by 7; $91,000/ 7 = $13,000
the first year would be $6,500 and the eighth year $6,500 (half year convention) and the other years $13,000.
Depreciation schedule Using MACRS
| Year | Tax rate | Depreciation |
| 1 | 14.29% | 13003.9 |
| 2 | 24.49% | 22285.9 |
| 3 | 17.49% | 15915.9 |
| 4 | 12.49% | 11365.9 |
| 5 | 8.93% | 8126.3 |
| 6 | 8.93% | 8126.3 |
| 7 | 8.93% | 8126.3 |
| 8 | 4.46% | 4049.5 |
Comparing the two depreciation schedules before and after taxes (at 40%):
| Year | Straight line | MACRS | Before Tax | After Tax |
| 1 | 6500 | 13003.9 | 6503.9 | 2601.56 |
| 2 | 13000 | 22285.9 | 9285.9 | 3714.36 |
| 3 | 13000 | 15915.9 | 2915.9 | 1166.36 |
| 4 | 13000 | 11365.9 | -1634.1 | -653.64 |
| 5 | 13000 | 8126.3 | -4873.7 | -1949.48 |
| 6 | 13000 | 8126.3 | -4873.7 | -1949.48 |
| 7 | 13000 | 8126.3 | -4873.7 | -1949.48 |
| 8 | 6500 | 4049.5 | -2450.5 | -980.2 |
| Total | 91000 | 91000 | 0 | 0 |
The difference is that the MACRS moves up the tax shield to the early years of depreciation yet the total tax shield is the same under both depreciation schedules
jeff jeffy answered 1 year agoRelated Solutions
Depreciation expense. Richardses' Tree Farm, Inc. has just purchased a new aerial tree trimmer for...
Depreciation expense. Richardses' Tree Farm, Inc. has just
purchased a new aerial tree trimmer for $95,000. Calculate the
depreciation schedule using a seven-year life for both
straight-line depreciation and MACRS, Use the half-year
convention for both methods. Compare the depreciation schedules
before and after taxes using a 40% tax rate. What do you notice
about the difference between these two methods?
1. Using a seven-year life, straight-line depreciation, and
the half-year convention for the first and last years, what...
McCracken Aerial, Inc., produces and sells a unique type of TV antenna. The company has just...
McCracken Aerial, Inc., produces and sells a unique type of TV
antenna. The company has just opened a new plant to manufacture the
antenna, and the following cost and revenue data have been provided
for the first month of the plant’s operation:
Beginning
inventory
0
Units produced
40,500
Units sold
36,000
Selling price per
unit
$
88
Selling and
administrative expenses:
Variable
per unit
$
5
Fixed
(total)
$
528,000
Manufacturing
costs
Direct
materials...
Ziggy Inc., has sales of $817,000 costs of $343,000, depreciation expense of $51,000, interest expense of...
Ziggy Inc., has sales of $817,000 costs of $343,000,
depreciation expense of $51,000, interest expense of $38,000 and
tax rate of 35%. What is the net income of the firm? Suppose the
firm paid out $95,000 in cash dividends. What is the addition to
retained earnings? Suppose the firm had 90,000 shares of common
stock outstanding. What is the earnings per share? What is the
dividends per share figure?
ABC Inc. has sales of $44,500, costs of $19,400, depreciation expense of $2,900, and interest expense...
ABC Inc. has sales of $44,500, costs of $19,400, depreciation
expense of $2,900, and interest expense of $2,400. If the tax rate
is 35%, what is the operating cash flow, or OCF? (Omit $
sign in your response.)
Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest expense...
Hammett, Inc., has sales of $19,630, costs of $9,400,
depreciation expense of $2,070, and interest expense of $1,560.
Assume the tax rate is 30 percent. (Enter your answer as
directed, but do not round intermediate calculations.)
Required:
What is the operating cash flow?
Operating cash flow
Benson, Inc., has sales of $39,230, costs of $12,930, depreciation expense of $2,630, and interest expense...
Benson, Inc., has sales of $39,230, costs of $12,930,
depreciation expense of $2,630, and interest expense of $1,910. The
tax rate is 22 percent. What is the operating cash flow, or OCF?
(Do not round intermediate calculations and round your answer to
the nearest whole number, e.g., 32.)
Billy's Exterminators, Inc., has sales of $817,000, costs of $343,000, depreciation expense of $51,000, interest expense...
Billy's Exterminators, Inc., has sales of $817,000, costs of
$343,000, depreciation expense of $51,000, interest expense of
$38,000, and a tax rate of 21 percent. The firm just paid out
$95,000 in cash dividends. The company has 90,000 shares of common
stock outstanding. What is the earnings per share, or EPS, figure?
What is the dividends per share?
1) Wick Inc., has sales of $889,095.00, operating costs (not including depreciation) of $320,074.20, depreciation expense...
1) Wick Inc., has sales of $889,095.00, operating costs (not
including depreciation) of $320,074.20, depreciation expense of
$124,473.30, interest expense of $62,236.65, and a tax rate of
38.00%. What is the net income for this firm?
a. $237,032.73
b. $237,032.73
c. $145,278.12
d. $168,928.05
2)Given the following Financial Information Answer the following
question:
2017
2018
Cash
3,000
461,305
Accounts Receivable
9,000
9,900
Inventory
5,000
5,500
Prepaid Assets
3,000
3,300
Other Assets
5,000
5,500
Total Current Assets
25,000
485,505
Net PPE...
Yellow Inc. is recording a $10,000 annual straight line depreciation expense on equipment purchased 3 years...
Yellow Inc. is recording a $10,000 annual straight line
depreciation expense on equipment purchased 3 years ago [January 1,
2016]. The equipment originally costed $200,000. The current
[January 1, 2019] book value of the equipment is $170,000. The
equipment was estimated to have zero salvage value at the time of
purchase. On January 1, 2019 Yellow Inc. decided to reduce the
original useful life of the equipment by 25 % and to establish a
salvage value of $20,000.
Tax effects...
So Big, Inc. has sales of $ 14,600, operating costs of $ 8,600, depreciation expense of...
So Big, Inc. has sales of $ 14,600, operating costs of $ 8,600,
depreciation expense of $ 1,300, and interest expense of $ 700. If
the tax rate is 40 percent, what is the operating cash flow, or
OCF? Do not include the $ sign, and round it to a whole dollar,
e.g., 2,345 (for $2,345).
Your Answer:
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- MARGI sells different types of wine. Customers place orders to the most popular “Summer Wine” at...
- Java. If possible please put explanations for each line of code. Write a test program that...
- . Use the following information to calculate your company's expected return State Probability Return Boom 20%...
- You are considering the following two projects and can only take one. Your cost of capital...
- C++: Write a program that produces truth tables for the following compound propositions. Write the header...
- 1. What is the historical role of investment bankers ? Has this role changed ? Why...
- How were the original Internet requirements met through its design? What are the two main requirements...
ADVERTISEMENT