FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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- On January 1, the Matthews band pays $67,000 for sound equipment. The band estimates it will use this equipment for five years and after five years it can sell the equipment for $2000. Matthews Band uses straight-line depreciation but realizes at start of the second year that this equipment will only last a total of three years. The salvage value is not changed. Compute the revised depreciation for both the second and third years. Can you please explain this question in steps so confused.arrow_forwardTech Engineering Company is considering the purchase of a new machine. The new machine, which falls into the MACRS 5-year class, has an estimated life of 5 years, and it costs $40,000 to purchase the machine. Tech plans to sell the machine at the end of the fifth year for $12,000. Initial decrease in accounts payable = $3,000, which must be restored at the end of the project's life. The applicable depreciation rates are 0.20, 0.32, 0.19, 0.12, 0.11, and 0.06. The new machine is expected to generate before-tax cash savings of $13,000 per year. The company's tax rate is 30%. What is the year 5 total free cash flow of the proposed project? Group of answer choices $24,540 $32,540 $22,540 $27,540 $29,540arrow_forwardAn injection moulding machine was purchased 2 years ago. The machine has been depreciated on a straight-line basis with $500 salvage value, and it has 6 years of remaining life. Its current book value is $2,600, and it can be sold for $3,000 at this time. Assume, for ease of calculation, that the annual depreciation expense is $350 per year. The firm is offered a replacement machine which has a cost of $8,000 an estimated useful life of 6 years, and an estimated salvage value of $800. This machine falls into the MACRS 5-year class (20%, 32%, 19%, 12%, 12%, 5%). The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine would cause operating expenses to decline by $1,500 per year. The machine would require that inventories be increased by $2,000 but accounts payable would simultaneously increase by $500. The firm’s marginal federal-plus-state tax rate is 40 percent, and its cost of capital is 15 percent. Should it replace…arrow_forward
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