Question

Equipment costing 110,000 will be placed in use in early July 2020 operating until early December...

Equipment costing 110,000 will be placed in use in early July 2020 operating until early December of 2023 at which time it will be scrapped. No loans are planned. Direct revenue and direct costs of the equipment is shown below.

Year 2020 2021 2022 2023
Direct Revenue 28,000 45,000 65,000 50,000
Direct Cost 15,000 21,000 29,000 22,000

Using US tax methodology for depreciation of a 3 year property and income tax calculation, answer the questions below.

a. What are the taxes in each year of use using a 21% tax rate? Report sign if taxes are negative.

b. What is the net present worth of after-tax cash flows applying an MARR of 7.0%?

Homework Answers

Answer #1
YEAR 2020 2021 2022 2023
DIRECT REVENUE 28000 45000 65000 50000
DIRECT COST (15000) (21000) (29000) (22000)
GROSS PROFIT 13000 24000 36000 28000
DEPRECIATION (18331) (48895) (16291) (7472)
PROFIT BEFORE TAX (5331) (24895) 19709 20528
TAX 0 0 4139 4311
PROFIT AFTER TAX (5331) (24895) 15570 16217
+DEPRECIATION 18331 48895 16291 7472
CASH FLOW AFTER TAX 13000 24000 31861 23689
PRESENT VALUE FACTOR 0.934 0.873 0.816 0.763
PRESENT VALUE 12149 20962 25998 18072

DEPRECIATION COMPUTATION

PARTICULAR 2020 2021 2022 2023
RATE AS PER MACRS 33.33 44.45 14.81 7.41
VALUE OF EQUIPMENT 110000 110000 110000 110000
DEPRECIATION

110000 * 0.3333 * 6/12

=18331

110000 * 0.4445

=48895

110000 * 14.81

=16291

110000 * 0.741 *11/12

=7472

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