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(a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456. Answer:

(a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456. Answer:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Smith Timber Company has been in operation for many years and is looking to invest in the Pacesetter 3000 timber cutter. They expect to keep this machine for 3 years. In order to install the machine they have decided to take a piece of land off the market that they were trying to sell for $500,000. The machine will cost $150,000 and $30,000 to install. Depreciation for accounting purposes is 8 years straight line and for taxation purposes is 6 years straight line. The installation is immediately tax deductible. The tax rate is 30%. The company feels that they will need to keep an extra $40,000 in inventory from the start of the project. A report was commissioned last year that looked at the feasibility of the project and cost $1m to write. The machine will see output increase by 4 million units to 10m units. The variable cost per unit will be $3.50 and the sales price per unit $10. Fixed costs will increase from $250,000 per annum to $450,000 per annum. Head office costs of $1m will be allocated to the new machine but the overall head office costs have not changed with the addition of the new machine. (a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456 . Answer: (b) Calculate the Free Cash Flow in Year 1. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456
Transcribed Image Text:The Smith Timber Company has been in operation for many years and is looking to invest in the Pacesetter 3000 timber cutter. They expect to keep this machine for 3 years. In order to install the machine they have decided to take a piece of land off the market that they were trying to sell for $500,000. The machine will cost $150,000 and $30,000 to install. Depreciation for accounting purposes is 8 years straight line and for taxation purposes is 6 years straight line. The installation is immediately tax deductible. The tax rate is 30%. The company feels that they will need to keep an extra $40,000 in inventory from the start of the project. A report was commissioned last year that looked at the feasibility of the project and cost $1m to write. The machine will see output increase by 4 million units to 10m units. The variable cost per unit will be $3.50 and the sales price per unit $10. Fixed costs will increase from $250,000 per annum to $450,000 per annum. Head office costs of $1m will be allocated to the new machine but the overall head office costs have not changed with the addition of the new machine. (a) Using this information, calculate the annual depreciation of the machine. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456 . Answer: (b) Calculate the Free Cash Flow in Year 1. Do not round to the nearest thousand, and don't type the dollar sign or commas. E.g. type your answer as 93456, not 93.4, and not $93,456
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