Can you please write your answer by keyboard QUESTION 24 After reviewing the pro

Question

Can you please write your answer by keyboard

QUESTION 24 After reviewing the propositions made in the previous question (question 231 the company decided to go ahead and purchase the new heating equipment. During the heating equipments 5-year useful life, it is estimated that the company will receive $90,000 per year after all the costs to operate the heating equipment have been paid As a reminder, the heating equipment can be purchased for $130,000 and will cost another $15,000 to be installed. At the end of the heating equipment's 5-year useful life, k s estimated that the equipment can be salvaged for $20,000 Ater the heating equipment is put into operations, what the are the aftertax cash flows for the next 5 years projected to be? Assume straight line depreciation and an income tax rate of34% TTTArel words:0 Path: P

Explanation / Answer

The information for the given numerical is recorded as follows:

Initial Price for purchasing Equipment = $ 130,000

Installation charge of equipment = $15,000

Therefore total initial charge of equipment = $130,000+$15000 = $145,000

Salvage value of equipment = $20,000

Span of equipment = 5 years

It has been mentioned that there is straight line depreciation method and the tax rate is 34%

Therefore Depreciation = (total initial charge of equipment - salvage value of equipment)/ Life or span of equipment

Or Depreciation = ($145000-$20000)/5

Or Depreciation = $25000

It has been mentioned that the company will receive $90,000 per year after paying for expenses.

This means that every year the net income if $90000 and in year 5, there is an additional salvage value of $20000.

Here, Taxable Income = Before Tax Cash Flow - Depreciation

Therefore the column can be prepared as follows:

Year

Before Tax Cash Flow ($)

Depreciation ($)

Taxable Income ($)

Tax amount ($)

After Tax Cash Flow ($)

0

-145000

0

0

-145000

1

90000

25000

65000

22100

67900

2

90000

25000

65000

22100

67900

3

90000

25000

65000

22100

67900

4

90000

25000

65000

22100

67900

5

90000 + 20000

25000

85000

28900

81100

Year

Before Tax Cash Flow ($)

Depreciation ($)

Taxable Income ($)

Tax amount ($)

After Tax Cash Flow ($)

0

-145000

0

0

-145000

1

90000

25000

65000

22100

67900

2

90000

25000

65000

22100

67900

3

90000

25000

65000

22100

67900

4

90000

25000

65000

22100

67900

5

90000 + 20000

25000

85000

28900

81100

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