Share
Explore BrainMass

Angiletta Corporation: PV of future cash flows, Book deprec

Angiletta Corporation is considering a new project requiring a $30,000 investment in test equipment with no salvage value. The project would produce $12,000 of pretax income before depreciation at the end of each of the next six years. The company's income tax rate is 40%. 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.

Straight-Line
Depreciation MACRS
Depreciation
Year 1 $ 3,000 $ 6,000
Year 2 6,000 9,600
Year 3 6,000 5,760
Year 4 6,000 3,456
Year 5 6,000 3,456
Year 6 3,000 1,728

Totals $ 30,000 $ 30,000

1. Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate. (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

2. Compute the net present value of the investment if MACRS depreciation is used. Use 10% as the discount rate. (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

$2.19