\"The Simon Machine Tools Company is considering purchasing a new set of machine
ID: 2510435 • Letter: #
Question
"The Simon Machine Tools Company is considering purchasing a new set of machine tools to process special orders. The following financial information is available.
- Without the project, the company expects to have a taxable income of $368,000 each year from its regular business over the next three years.
- With the three-year project, the purchase of a new set of machine tools at a cost of $52,000 is required. The equipment falls into the MACRS three-year class. The tools will be sold for $18,000 at the end of project life. The project will be bringing in additional annual revenue of $85,000, but it is expected to incur additional annual operation of $17,000.
What are the additional income taxes paid because of the project in year 2 if the tax rate is 34%?"
Explanation / Answer
Additional Income Tax to pain in year 2 by Simon Machine Tools Co. Ltd.
PARTICULARS
With the project
Without the project
Additional Amount
Amount In $
Amount In $
Amount In $
Taxable Income
368,000
368,000
-
Additional annual revenue
-
85000
85000
Less:
Additional annual operation cost
-
17000
17000
Depreciation ( As per working)
-
11333
11333
Total Taxable Income
368,000
424,667
56667
Tax at the rate of 34%
125,120
144,387
19,267
Working Note : Depreciation = Cost of machine - Selling price of machine at end of project / Life of project
Depreciation = $52,000 - $18,000 / 3
Depreciation = $ 11,333.33
PARTICULARS
With the project
Without the project
Additional Amount
Amount In $
Amount In $
Amount In $
Taxable Income
368,000
368,000
-
Additional annual revenue
-
85000
85000
Less:
Additional annual operation cost
-
17000
17000
Depreciation ( As per working)
-
11333
11333
Total Taxable Income
368,000
424,667
56667
Tax at the rate of 34%
125,120
144,387
19,267
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