Under consideration is financing the purchase of a machine using a 3-year loan paid in years...

Under consideration is financing the purchase of a machine using a 3-year loan paid in years 1 through 3 with a down payment of 40 percent and interest rate of 8.0%. An analysis of the 60,000 machine paid in full at time of purchase a forecast of taxable income (not taxes) which included depreciation using 3 year MACRS percentages gave the results below.

Year	1	2	3	4
Forecasted Taxable Income	22,000	26,000	8,000	4,000

Calculate and report the new estimate of the taxable income (not taxes) in years 1 through 4 with this loan.

Expert Solution

Loan amount = (60000-(60000*40%))	36000
Interest rate annual=	8%
Time in years (n)=	3
Equal annual payments for loan formula = P* i *((1+i)^n)/((1+i)^n-1)
360000.08((1+0.08)^3)/(((1+0.08)^3)-1)
$13,969.21

	Loan amortization table
Year	Beginning balance	Payment	Interest @8%	Loan Red.	Ending balance

			(Beg. Bal, *8%)	(Payment - interest)	(Beg. Balance - Loan red.)
1	36000.00	13969.21	2880.00	11089.21	24910.79
2	24910.79	13969.21	1992.86	11976.34	12934.45
3	12934.45	13969.21	1034.76	12934.45	0.00


Calculation of Forecasted taxable income Interest will be reduced from income given as already all costs and depreciation has been deducted.

Year	1	2	3	4
Taxable income before interest	22000.00	26000.00	8000.00	4000.00
Less : interest	-2880.00	-1992.86	-1034.76	0.00

Estimated taxable income	19120.00	24007.14	6965.24	4000.00

So, Forecasted taxable income is
year 1	$19,120.00
year 2	$24,007.14
year 3	$6,965.24
year 4	$4,000.00

jeff jeffy answered 10 months ago

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