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# Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3

### Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3

[The following information applies to the questions displayed below.]

Manning Corporation is considering a new project requiring a \$100,000 investment in test equipment with no salvage value. The project would produce \$72,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

 Straight-LineDepreciation MACRSDepreciation Year 1 \$ 10,000 \$ 20,000 Year 2 20,000 32,000 Year 3 20,000 19,200 Year 4 20,000 11,520 Year 5 20,000 11,520 Year 6 10,000 5,760 Totals \$ 100,000 \$ 100,000

3. Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate.

Chart Values are Based on:i =YearNet Cash InflowxPV Factor=Present Value1=2=3=4=5=6=Net present value

manish jayant 10-Sep-2020