Incremental after-tax cash flows
Not what you're looking for?
Company Z is considering upgrading their old machine with a new machine.
EXISTING MACHINE:
Cost = $100,000
Purchased 2 years ago
Depreciation using MACRS over 5-year recovery schedule
Current Market Value = $105,000
Five year usable life remaining
40% tax rate on ordinary and capital gains
Earnings before Depreciation and Taxes
year 1 $160,000
year 2 $150,000
year 3 $140,000
year 4 $140,000
year 5 $140,000
PROPOSED MACHINE:
Cost = $150,000
Installation = $20,000
Depreciation using MACRS over 5-year recovery schedule
5 year usable life expected
40% tax rate on ordinary and capital gains
Earnings before Depreciation and Taxes
year 1 $170,000
year 2 $170,000
year 3 $170,000
year 4 $170,000
year 5 $170,000
Summarize the incremental after-tax cash flow(relevant cash flows) for years t=0 through t=5
Purchase this Solution
Solution Summary
The solution explains how to calculate the incremental after-tax cash flows
Solution Preview
New Machine Cost 170,000
Old machine Book Value 48,000 Old Equipment Depreciation under 5 year MACRS
Sale price of old machine 105,000 Year 1 2 3 4 5 6
Gain on Sale 57,000 Rate 0.200 0.320 0.192 0.115 0.115 0.058
Tax on Gain (40%) 22,800 Depreciation 20,000 32,000 19,200 11,500 11,500 5,800
After Tax Receipt 82,200
Incremental Depreciation Schedule ...
Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Introduction to Finance
This quiz test introductory finance topics.