Please respond accordingly, (show work): >You purchased some farm equipment for

Question

Please respond accordingly, (show work):

>You purchased some farm equipment for $150,000 that has an expected life of 7 years. At the end of the first year how much can the equipment be depreciated using the MACRS method? a) $12,450 b) $21,450 c) $15,000 d) $30,000 Page |4 You work for a company that produces sprockets. The yearly operating expense is $1,500,000. If each sprocket cost $0.71 and sells for $3.14 how many sprockets, do you need to sell to break even? a) 817,658 b) 1,500,000 c) 716,824 d) 617,284

Explanation / Answer

(1) (b)

As per MACRS depreciation schedule (7-year property class), depreciation rate in year 1 = 14.29%

Depreciation in year 1 = $150,000 x 0.1429 = $21,435

Option (b) is closest.

(2) (d)

Breakeven quantity = Operating cost / (Selling price - Unit cost) = $1,500,000 / $(3.14 - 0.71)

= $1,500,000 / $2.43

= 617,284

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