Question

The following data are from an after-tax cash flow analysis in year 1 for a new...

The following data are from an after-tax cash flow analysis in year 1 for a new MACRS 5-year property. How much money would be saved in year 1 if 100% bonus depreciation is used?
Initial Investment = $180,000
Regular MACRS Depreciation Deduction in Year 1 = $36,000
Before-Tax-and-Loan Cash Flow = $280,000
Loan Principal Payment = $17,500
Interest on Loan = $5,650

$37,800

$37,900

$36,000

$75,600

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Answer #1

$ 36,000

the Regular MACRS Depreciation Deduction in Year 1 = $36,000

100% bonus depreciation in year one means the additional depreciation allowed will by $36,000

Since the data analyzed is after tax cash flows, the depreciation would have been added back in these cash flows -since they are non cash items

Hence money saved in year 1 due to 100% bonus depreciation will be the depreciation amount $36,000

( Note : Actual savings will be    Depreciation X (1-tax rate).   however tax rates are not given.

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