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Hercules Exercise Equipment Co purchased a computerized measuring device two years ago for $66000 The equipment falls into the fiveyear category for MACRS depreciation and can currently be sold

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $66,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $28,800. A new piece of equipment will cost $156,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Year   Cash Savings
1   $ 66,000  
2     58,000  
3     56,000  
4     54,000  
5     51,000  
6     40,000  
 

The firm’s tax rate is 40 percent and the cost of capital is 9 percent.

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

Year Tax Shield Benefits from Depreciation Aftertax Cost Savings Total Annual Benefits
1      
2      
3      
4      
5      
6      
 

 

Apr 04 2020 View more View Less

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