Simon Machine Tools Company is considering the purchase of a new set ofmachine tools to process special orders over the next three years. The following financial information is available:Without the project, the company expects to have a taxable income of $400,000 each year from its regular business over the next three years.This three-year project requires the purchase of a new set of machine tools at a cost of $50,000. The equipment falls into the MACRS three-year class. The tools will be sold at the end of the project life for $10,000. The project will bring in additional annual revenue of $90,000, but it is expected to incur additional annual operating costs of $25,000.(a) What are the additional taxable incomes (from undertaking the project) during years 1 through 3, respectively?(b) What are the additional income taxes (from undertaking the new orders) during years 1 through 3, respectively?

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Answered: Simon Machine Tools Company is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

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Simon Machine Tools Company is considering the purchase of a new set of
machine tools to process special orders over the next three years. The following financial information is available:

Without the project, the company expects to have a taxable income of $400,000 each year from its regular business over the next three years.
This three-year project requires the purchase of a new set of machine tools at a cost of $50,000. The equipment falls into the MACRS three-year class. The tools will be sold at the end of the project life for $10,000. The project will bring in additional annual revenue of $90,000, but it is expected to incur additional annual operating costs of $25,000.
(a) What are the additional taxable incomes (from undertaking the project) during years 1 through 3, respectively?
(b) What are the additional income taxes (from undertaking the new orders) during years 1 through 3, respectively?

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