Chapter 09, Problem 045 (GO Tutorial) Abbott placed into service a flexible manu

Question

Chapter 09, Problem 045 (GO Tutorial)

Abbott placed into service a flexible manufacturing cell costing $810,000 early this year for production of their analytical testing equipment. Gross income due to the cell is expected to be $700,000 with deductible expenses of $495,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class, calling for a depreciation percentage of 14.29%, or $115,749, in the 1st year. Half of the cell cost is financed at 11% with principal paid back in equal amounts over 5 years. The 1st year's interest is therefore $44,550, while the principal payment is $81,000.

Determine the taxable income for the 1st year. $

Determine the tax paid due to the cell during the 1st year using a 40% marginal tax rate. $

Determine the after-tax cash flow for the 1st year. $

Round your answer to the nearest whole dollar. Tolerance is +/- 1.

Explanation / Answer

Tax paid during 1st year = ( Revenue - expenses - depreciation )X tax rate

Tax paid during 1st year = ($700,000 - $495,000 - $115,749) X 0.40

Tax paid during 1st year = $ 35,700.40

After tax cash flow for the 1st year = ( Revenue - expenses - depreciation ) X ( 1- tax rate) + depreciation

After tax cash flow for the 1st year = ( ($700,000 - $495,000 - $115,749) X ( 1- 0.40 ) + $115,749

After tax cash flow for the 1st year = $ 169,299.60

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