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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

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-Line
Depreciation
  MACRS
Depreciation
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

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