Mayflower Engineered Products purchased and installed a new automated production system to aid in its manufacturing process and increase productivity two years ago. The system has a useful life of 8 years. The company estimated that the new automated process will increase productivity and will result in savings of $40,000 per year. Deductible expenses other than depreciation and interest associated with the new automated system are $20,000 per year. Depreciation is $10,000 this year-2014. Interest on borrowed money is $5,000 paid in 2014 and $3,000 in principal is paid back in year 2014. a. What is the taxable income for the year 2014? b. Assume an income tax rate of 25%, what is the after tax cash flow for the year 2014?

Mayflower Engineered Products purchased and installed a new automated production system to aid in its manufacturing process and increase productivity two years ago. The system has a useful life of 8 years. The company estimated that the new automated process will increase productivity and will result in savings of $40,000 per year. Deductible expenses other than depreciation and interest associated with the new automated system are $20,000 per year. Depreciation is $10,000 this year-2014. Interest on borrowed money is $5,000 paid in 2014 and $3,000 in principal is paid back in year 2014. a. What is the taxable income for the year 2014? b. Assume an income tax rate of 25%, what is the after tax cash flow for the year 2014?

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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