Freedom Corporation acquired a fixed asset for $140,000. Its estimated life at time of purchase was 4 years, with no estimated salvagevalue. Assume a discount rate of 6% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.)Required:1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits(SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculatedepreciation charges.2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance(DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculatedepreciation charges.3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation?The asset qualifies as a 3-year asset. Use the half-year convention.Complete this question by entering your answers in the tabs below.Required 1Required 2Required 3What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel tocalculate depreciation charges. (Negative amount should be indicated by a minus sign. Round your answer to the nearestwhole dollar.)Incremental PV of tax savings using SYD depreciationRequired 1Required 2 >

Incremental present value of the tax benefits resulting from calculating depreciation using the…

Answered: Freedom Corporation acquired a fixed…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Freedom Corporation acquired a fixed asset for $300,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 7% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2) Jy Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a…
Freedom Corporation acquired a fixed asset for $100,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 8% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a…
1. A special manufacturing and handling device was purchased by Alfonso Manufacturing for $200,000 and is depreciated over MACRS. CFBT is estimated to amount to $800,000 for the first 2 years followed by $600,000 thereafter until the asset is retained. The effective tax rate, Te is 35% and interest is 10% per year. In present worth dollars determine the CFAT and determine if it was a viable purchase. (Note answer must be in a tabular format)
Freedom Corporation acquired a fixed asset for $230,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 5% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a…
Tony Industries plan to sell a machine in the current tax year. The cost basis presented is RM500,000 and the accumulated depreciation is RM450,000. The effective income tax rate is 0.30. Determine: the minimum sold price required of the machine to gain on the disposal and (i) (ii) the revised minimum sold price required of the machine to gain on the disposal if the effective income tax rate adjusted to 0.50 while accumulated depreciation increased 10 %.
An asset used in a 4-year project falls in the 5-year MACRS class, for tax purposes. The asset has an acquisition cost of $22,302,334 and will be sold for $5,717,194 at the end of the project. If the tax rate is 0.37, what is the aftertax salvage value of the asset (SVNOT)? TABLE 9.7 Modified ACRS depreciation allowances Year 3-Year 1 33.33% 44.45 14.81 7.41 2345678 Property Class 5-Year 20.00% 32.00 19.20 11.52 11.52 5.76 7-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46
A business purchasing an item for business purposes may use straight-line depreciation to obtain a tax deduction. The formula for the present value, P, after t years is P = C − (C-S/L)T Where C is the cost and s is the scrap value after L years. The number L is called the useful life of the item. (a) If a certain piece of equipment costs $23,000 and has a scrap value of $2,500 after 5 years, write an equation to represent the present value after t years.
An asset that was originally purchased for $60,818 is being depreciated straight-line over its useful life. 83% of the asset has been depreciated. The asset can be sold for $35,191. If the company's tax rate is 34%, what is the after-tax salvage of this asset? Express your answer to the nearest whole number.
Using (a) straight-line depreciation and (b) MACRS depreciation, complete the last four columns of the table below using an effective tax rate of 40 percent on an asset that has a first cost of $20,000 and a 3-year recovery period with no salvage value. Both cash flows are in units of $1000.
Assume the following: . A firm acquires an asset for $120.000 with a 5 year useful life and no salvage . The asset will generate $50,000 of cash flow for all five years . The tax rate is 20% . The firm will depreciate the asset over four years on a straight-line (SL) basis for tax purposes and over five years on a SL basis for financial reporting purposes. Taxable income in year 1 is: $26.000 $20.000 © $4.000
An asset used in a 4-year project falls in the 5 year MACRS class, for tax purposes. The asset has an acquisition cost of $18, 983, 985 and will be sold for $7, 739, 110 at the end of the project. If the tax rate is 0.32, what is the aftertax salvage value of the asset (SVNOT)?
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