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Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent. Image For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2) Select one: A. $47,850 B. $21,000 C. $42,000 D. $50,850

Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent. Image For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2) Select one: A. $47,850 B. $21,000 C. $42,000 D. $50,850

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Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.

Image

For Proposal 3, the incremental depreciation expense for year 3 is ________. (See Table 11.2)

Select one:

A.

$47,850

B.

$21,000

C.

$42,000

D.

$50,850

 

Type of Capital Budgeting Decision Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) 1 Expansion Independent $1,500,000 $0 10 years N/A* N/A N/A N/A N/A $250,000 Proposal 2 Replacement Mutually Exclusive with 3 $200,000 $0 5 years $80,000 1/1/2018 $50,000 5 years $30,000 $100,000 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000
Transcribed Image Text:Type of Capital Budgeting Decision Type of Project Cost of new asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceeds (old asset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) 1 Expansion Independent $1,500,000 $0 10 years N/A* N/A N/A N/A N/A $250,000 Proposal 2 Replacement Mutually Exclusive with 3 $200,000 $0 5 years $80,000 1/1/2018 $50,000 5 years $30,000 $100,000 3 Replacement Mutually Exclusive with 2 $300,000 $15,000 5 years $100,000 1/1/2021 $120,000 5 years $25,000 $175,000
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