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I've got an exercise here: MACRS 5 year Depreciation Schedule for a 5 year program, 35%...

I've got an exercise here: MACRS 5 year Depreciation Schedule for a 5 year program, 35% taxes. in the second and obviously the last one we could deduct more taxes than we actually have revenue. the revnue is 26,000 yearly, so the tax deduction of 32% from a 100,000 investment in the second year is more than the actual revenue

Do I go beyond zero and how do I continue with that?

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Answer #1

Yes, You have to go beyond zero to calculate the effect. If loss occurs due to depreciation in any year will have tax credit on the loss hence it should be considered according to the depreciation schedule. Please find the tax credit and cash flow calculation for the given infomation

Particulars Year 2
Revenue (A) 26000
Depreciation (B)
100,000 *32%		 32000
Profit Before Tax (C = A-B) -6000
Tax @35% (D = C*35%) -2100
Profit After Tax (E = C-D) -3900
Depreciation (F = B) 32000
Net Cash Flows (G = E+F) 28100
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