In: Finance
1. A firm is considering purchasing an asset that will cost $5 million. Other depreciable costs include $800,000 in installation costs. if the asset is classified as a 5 year class what is the annual depreciation for years 1, 3, and 6 for this assist, using the fixed depreciation percentages given by MACRS? (20%, 19.20%, 5.76%and 8.93% respectively)
a. $1,856,000, $1,113,600, and $334,080 for year 1, 3, and 6 respectively
b. $1,160,000, $1,113,600, and $334,080 for year 1, 3, and 6 respectively
c. $1,160,000, $1,113,600, and $668,160 for year 1, 3, and 6 respectively
d. $5,800,000, $1,160,000 and $1,113,600 for year 1, 3, and 6 respectively
2. With a line of credit, the bank is compensated
a. based on the outstanding balance of the loan
b. based on the principal value of the credit line
c. exclusively with a fixed annual payment
d. based on a fixed interest rate tied to the T-bill rate
3. The current book value of an asset serves as the basis for determining the gain or loss at disposal.
a. True
b. False
QUESTION-1
The five-year life MACRS depreciation rates are 20%, 32%, 19.20%, 11.20%, 11.20% and 5.76% per the year1, year2, year3, year4, year 5 and year 6 respectively.
Years |
Annual Depreciation |
Year 1 |
8,960.00 |
Year 3 |
5,376.00 |
Year 6 |
3,225.60 |
Depreciation for Year 1 = $1,160,000 [$58,00,000 x 20%]
Depreciation for Year 3 = $1,113,600 [$58,00,000 x 19.20%]
Depreciation for Year 6 = $334,080 [$58,00,000 x 5.76%]
“Hence, the answer would be “(b). $1,160,000, $1,113,600, and $334,080 for year 1, 3, and 6 respectively”
QUESTION-2
With a line of credit, the bank is compensated “based on the principal value of the credit line”
QUESTION-3
“TRUE”. The current book value of an asset serves as the basis for determining the gain or loss at disposal.
-The gain or loss at disposal is the difference between the Book Value of the asset and the sale proceeds on the disposal of asset.
-There will be a loss on sale of assets if the sales value of asset is lower than the Book value of the assets
-There will be a gain on sale of assets if the sales value of asset is higher than the Book value of the assets.