Question

"A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated...

"A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,900 per year. It is expected that the purchase of the truck will increase its revenue by $20,000 annually. The O&M costs are expected to be $2,000 per year. The firm is in the 40% tax bracket, and its MARR is 12.7%. If the company plans to keep the truck only two years, what is the net present worth?"

Homework Answers

Answer #1

If the company plans on keeping the truck for 2 years, then the salvage value will be 15000 - (2*2900) = $9,200

And assuming the MACRS Depreciation is Half Yearly Convention the annual depreciation for the first two years will be $3,000 and $4,800 and the corresponding tax savings.

There will also be O&M Costs and their tax savings.

Based on the WDV of the asset, there will also be capital gain or loss and the tax on it.

Finally all of the cash flows should be multiplied with the PV Factor of MARR 12.7%.

Good luck

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated...
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,800 per year. It is expected that the purchase of the truck will increase its revenue by $13,000 annually. The O&M costs are expected to be $4,100 per year. The firm is in the 40% tax bracket, and its MARR is 15.3%. If the company plans to...
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated...
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,800 per year. It is expected that the purchase of the truck will increase its revenue by $13,000 annually. The O&M costs are expected to be $4,100 per year. The firm is in the 40% tax bracket, and its MARR is 15.3%. If the company plans to...
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated...
"A local delivery company has purchased a delivery truck for $12,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,800 per year. It is expected that the purchase of the truck will increase its revenue by $13,000 annually. The O&M costs are expected to be $4,100 per year. The firm is in the 40% tax bracket, and its MARR is 15.3%. If the company plans to...
"A local delivery company has purchased a delivery truck for $23,000. The truck will be depreciated...
"A local delivery company has purchased a delivery truck for $23,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,400 per year. It is expected that the purchase of the truck will increase its revenue by $20,000 annually. The O&M costs are expected to be $2,100 per year. The firm is in the 40% tax bracket, and its MARR is 13%. If the company plans to...
In 2015, a delivery company purchased a fleet of local delivery trucks for $175,000. These are...
In 2015, a delivery company purchased a fleet of local delivery trucks for $175,000. These are 5 year assets. This company pays federal tax at a rate of 23% per year. Develop a MACRS depreciation table for this asset, and compute the post-tax income of this company using their gross sales income given below. Is this a good investment if MARR = 25% per year? The company sold the trucks in September 2020 for $18,000. What are the tax implications?...
Linton Company purchased a delivery truck for $34,000 on July 1, 2022. The truck has an...
Linton Company purchased a delivery truck for $34,000 on July 1, 2022. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2022 and 12,000 in 2023. Linton uses the straight-line method of depreciation. Instructions a. Compute depreciation expense for 2022 and 2023. b. Prepare the journal entry to record 2022 depreciation. c. Prepare the journal entry to record...
Sheridan Company purchased a delivery truck for $36,000 on July 1, 2022. The truck has an...
Sheridan Company purchased a delivery truck for $36,000 on July 1, 2022. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2022 and 12,000 in 2023. Sheridan uses the straight-line method of depreciation. (a) New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect. Compute depreciation expense for 2022...
At Year 0, Vermont wood manufacturers Inc. purchased a light-duty delivery truck for $32,000 that has...
At Year 0, Vermont wood manufacturers Inc. purchased a light-duty delivery truck for $32,000 that has a 7-year service life. The truck was placed in service from Year 1. At the end of Year 7, it will be sold at a salvage value of $3000. The light-duty delivery truck has been depreciated according to a 7-year MACRS property class: a. Calculate the annual depreciation allowances over 7 years. (8 points) b. Calculate the annual book values over 7 years. (8...
Corales Company acquires a delivery truck at a cost of $65,000. The truck is expected to...
Corales Company acquires a delivery truck at a cost of $65,000. The truck is expected to have a salvage value of $2,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.
The Sorensen Supplies Company recently purchased a new delivery truck. The new truck costs $22,500, and...
The Sorensen Supplies Company recently purchased a new delivery truck. The new truck costs $22,500, and it is expected to generate after-tax cash flows, including depreciation, of $5,875 per year. The truck has a 5-year expected life. The expected year-end abandonment values (salvage values after tax adjustments) for the truck are given below. The company's WACC is 9%. Year Annual After-Tax Cash Flow Abandonment Value 0 ($22,500)       -       1 5,875 $17,000 2 5,875 15,000 3 5,875 9,000 4 5,875 4,750...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT