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Latest Motor Electronics (LME) is evaluating a proposal to create a new automated production process for a new product line. In the past year (year -1) $1 million has been spent researching this capability and it look promising. The proposal is to purchase machinery and install it this year (year 0). Next year (year 1) will be spent developing the capability (experimenting, debugging and training).
Shipments of products are expected to start in the following year (year 2) starting with $3,500,000 in revenues in that year and with a 25% growth annually in the years thereafter. COGS are forecasted to be 30% of revenues. Using a present worth criteria in a 5-year analysis, determine if it is financially justified to proceed with this project.
S.G.& A. are expected to be a constant $900,000 annually during the revenue years. In the development year, S.G. & A. is included in the Development estimate.
Investments should be depreciated using MACRS over 7 years and will have two components; one for the Machinery purchase and installation, and the other starting a year later for the Development investment. The depreciation starts in the year following when the investment is made. The salvage value is zero.
Ignore any Working Capital considerations.
Using the present worth criterion in a 5-year analysis (development year plus 4 revenue years), determine if it is financially justified to proceed with this project.© BrainMass Inc. brainmass.com October 25, 2018, 8:22 am ad1c9bdddf
See the attached file. Thanks
Income Statement 0 1 2 3 4 5
Sales revenue $0 $3,500,000 $4,375,000 $5,468,750 $6,835,938
Cost of goods sold $0 ($1,050,000) ($1,312,500) ($1,640,625) ($2,050,781)
Gross Margin $0 $2,450,000 $3,062,500 $3,828,125 $4,785,156
General, Sales and ...
The expert examines MACRS evaluating proposals.
MACRS Deprication, MACRS Computation, Income Tax Returns
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During year 1, Mr. F acquired 100 shares of stock in ABC Corporation for $500. During year 3 he sold the stock for $1,000. His adjusted basis in the stock at the time of sale was $500 and he had no other capital gains or losses during the year. What is the amount and character of income to be reported on F's income tax return for year 3?
A. $500 long-term capital gain
B. $500 short-term capital gain
C. $500 ordinary income
D. $500 tax-exempt income
For 2011, Mr. Opal had the following capital gains and losses:
Short-term gains: $4,300
Short-term loss from a partnership: ($3,000)
Short-term gain from an S corporation: $22,500
Short-term carryover loss from 2008: ($5,700)
Long-term gains (15% basket): $7,500
Long-term losses (28% basket): ($11,000)
What is Mr. Opal's total capital gain or loss for 2011 (do not consider passive activity rules)?
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D. $1,000 business bad debt.