Explore BrainMass
Share

# Depreciation and Net Present Value Problems

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

1. You are thinking of opening an internet coffee shop and estimate the following cash flows. The cost of the establishment is \$320,000 for the building and \$185,000 for equipment (tax life of 5 years) and both are placed it into service on January 1. The business will earn \$18,000 per week in revenue and have cash expenses of \$7,000 per week during its eight years of operation. Assume a 50-week year. The building and equipment will be sold for an after tax cash disposition value of \$200,000 at the end of the 8th year. No other cash flows will occur during the 8 years of operation. Using a 23 percent tax rate, and a 7 percent cost of money, what is the net present value of this business?

Net present value______________________

2. Myles Corporation is considering a new computer system (equipment) that can be purchased for \$143,000. Delivery will cost \$8,200 and setup will cost \$12,000. What is the initial depreciable cost (the amount that can be depreciated not depreciation expense) of the computer system?

Depreciable cost (not depreciation expense -- you may want to refer to the text)______________________

3. Mason James Corporation expects to install a \$82,000 machine in 2011 and another \$101,000 machine in 2012. The first machine has a 7-year tax life and the second machine has a 3-year tax life. What is the total expected depreciation expense for these two machines in 2013?

Total depreciation expense for both machines in 2013______________________